For Renee, a travel-loving millennial bracing for a cold winter, the opportunity was too good to pass up. A five-day getaway to Australia — where it was summer! — for under $2,000. True, she didn’t have enough cash to swing it, but she did have a credit card and it was made for moments like this. Her travel would be covered, and she’d earn rewards. Win-win. Book the flight, pack the swimsuit and go.
A month later, the credit card bill arrived. Not just for the airfare and hotel, but all the meals, sightseeing, clothes and gifts, too. Now Renee was $3,500 in debt, plus her regular expenses. Not to mention an upcoming tuition payment.
Renee is not alone. Millennials love traveling, and that passion can occasionally override their instincts toward frugality and saving.i Plus, they tend to go all out, spending more on getaways than any other age group.ii How can Renee recover from that “bargain” trip that pushed her debt sky-high and reset her financial habits so travel breaks don’t break her budget?
Don’t throw good money after bad. Taking a trip wasn’t “bad,” but spending any more money on it than necessary would be. Renee needs to:
- Absolutely, positively pay her credit card bill on time each month to avoid late fees.
- Pay more than the minimum, whenever possible. Otherwise, her liability will last for years and she will end up paying nearly as much in interest as her original debt. Experts suggest paying as much as you can comfortably affordable, twice the minimum payment or, if you’re in dire straits, $10-$20 above the minimum.
Give the plastic a time-out. Retiring a credit card till the balance is gone is a practical way to dig out from debt. Renee will want to stash it in a safe place so it’s available in an emergency, but not temptingly at hand.
Prepare for pop-up opportunities. You can’t anticipate the unexpected, but you can plan for it. Renee needs to honor her passion for exploring the world by creating a savings fund earmarked for traveling. By contributing a little each month, she’s more likely to have cash on hand to afford a last-minute weekend getaway or a long-anticipated vacation.
GPS the economics. Before vacationing, map out the likely costs. Calculate the “big number” on your trip and work back from there, prioritizing the most important elements (hiring a top guide for the mountain climb) and skimping on the meh-stuff (stay in a hostel, not a hotel). In other words: Put your money where it matters most.
Be a disciplined traveler. When you’re on vacation, the initial expense is compounded by the nearly limitless opportunities for frivolous spending during your stay. Gift shops. Expensive side trips. Pricey restaurants. By setting a daily spending limit — and sticking to it — Renee will still be able to take her dream cruise, for example, without going overboard on expenses.
Consider consolidation. If Renee financed her trip with multiple credit cards, she might consider a loan that rolls all her debt into a single payment at a lower interest rate. She needs to do some homework first though and find a reputable resource, such as a well-known non-profit credit counseling organization, bank or credit union.
For millennials, travel is part of what makes life worth living. And that’s likely to continue as they grow older. Working with a financial planner can help Renee integrate her travel goals with other emerging priorities, such as going back to school to further her career or buying a home, so she can truly have — and afford — it all. (And check out these additional tips for vacationing without the guilt trip.)
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i From Smartphones to Smart Planning, Guardian Life Insurance Company of America, 2018.
ii Millennials traveling and spending more than any other age group this summer, Travel Weekly, May 18, 2018.