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How to use a credit card for your next holiday

Information verified correct on December 7th, 2016

Why you should use a credit card before, during and after your next overseas holiday

Taking an overseas holiday is expensive, though, and your costs quickly begin to stack up. It’s always good to have savings stowed away for your trip, but using a credit card could be another way to manage your holiday finances, build up your credit history and earn extra perks along the way.

However, as a survey by finder.com.au discovered that almost one-third of Australians struggled to repay their holiday debt before the interest kicked in, it’s obvious that the average traveller has some difficulty managing their post-holiday debts. To make sure you’re spending responsibly while getting the most value out of your card, follow these tips for the best ways to use your credit card before, during and after your trip.

Prepping for your holiday

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Pre-book on plastic

The costs don’t just pile up only after you get off the plane, so it’s important to make sure that you have enough funds to organise your holiday. When you consider your accommodation, flights, pre-booked tours or activities, clothes and equipment and passport costs, it’s not hard to see how these costs add up. If you have a budget in place for holiday spending, a 0% purchase credit card could be a smart way to cover the costs before you go on holidays. These low purchase rates usually only stay in place for a promotional period though, so it’s important to repay the balance before the higher revert rate kicks in and your balance starts collecting interest.

Ensure you’re insured

As well as financing your trip without blowing your travel budget before you’ve left, using a credit card to fund your trip has other benefits. Many credit cards offer cardholders complimentary travel insurance if you spend a percentage of their travel costs on your credit card before they leave on holiday. For example, Westpac and Bankwest offer cardholders complimentary insurance for eligible cardholders (as well as partners and children travelling with them) when they spend $500 on the card. Some other banks, such as the Commonwealth Bank, don’t have spend requirements in the eligibility criteria, instead, you need to activate the insurance via NetBank before you leave. As these terms and conditions vary from bank to bank, it’s important to know exactly how you can access the insurance and what’s included if you can receive cover.

Given insurance is another cost you’ll need to consider before you leave for your trip, you may as well consider a card that comes with complimentary cover if you’re looking for a way to fund your trip.

Spending on your holiday

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In 2015, Visa’s Global Travel Intention study showed that Australians are likely to spend a median of US$3,603 on an average international holiday. This was the fifth highest in the world, exceeding the global median of US$2,281. They also predicted that Aussies would increase this travel spend in 2016, reaching a median of US$4,501.

In case of emergency

It turns out that the majority of these Australians may have paid for these travel costs on plastic. According to a finder survey, 57.16% of Australians used a credit card on their last holiday, with 24.38% leaving their plastic at home and 18.46% avoiding credit altogether. While you shouldn’t travel overseas without savings in your debit or prepaid card and a budget in mind, a credit card can come in handy for those unexpected and emergency expenses. For example, say if you miss your flight and need to pay an extra charge to book another flight, this is where a credit card could come in handy. If you're only planning on using your credit card for emergency purchases, consider a card with a low or no annual fee instead of 0% interest, as you're less likely to use the card and low interest cards usually come with higher annual fees.

Bolster the budget

finder found that while 48.34% of Aussies stuck to their budget, 16.08% went over theirs and 15.80% hadn’t even planned a budget. If you’re travelling overseas, having access to credit could be a lifesaver if you blow your budget or find yourself confronted with an emergency.

Curb overseas credit card fees and charges

Using a credit card doesn’t come without costs, so it’s important to compare your options and get your hands on the most competitive offer. When asked what were the biggest rip offs on their last holiday, 55.71% said ATM withdrawal fees and credit card charges, showing that most Aussies aren’t using the right credit cards for their holiday. So what should you be looking out for if you’re picking a card for your next overseas holiday? After making sure you can meet the eligibility requirements and that the credit limit supports your spending needs, look for a card that has no foreign currency conversion fees. This means you won’t have to fork out extra charges when making a purchase in a local currency, a cost that could add up quickly if you’re spending overseas. Ideally, you shouldn’t be using your credit card for ATM withdrawals overseas or at home, as they’ll both incur immediate and high cash advance fees. Instead, you might want to look for a debit or prepaid card with no international ATM withdrawal fees.

Reap rewards as you go

Some of the cards designed for overseas use, that offer complimentary travel insurance and low foreign transaction fees also come linked to rewards programs. Whether this is a bank reward program or a frequent flyer scheme, either option could be a good way to rack up rewards for every dollar you spend. The Coles Platinum Rewards MasterCard and the Bankwest More Platinum MasterCard both offer 2 rewards points for every dollar spent on the card. Both of these cards, and many other rewards cards, come with annual fees though, so it’s important to make sure the rewards you receive from the card outweigh the costs associated with the card. If you’re going to be spending a lot of time in airports, a card that offers complimentary lounge access could also come in handy. From free Wi-Fi to showers and spas to five star bars and buffets, these lounges can be a haven away from the crowded public waiting areas, especially if you have a long-haul flight ahead. These perks usually come with more premium cards though, so (again) it’s important to weigh up the costs and the value of the card before you apply.

Dodging post-holiday debt lag

holidayshopping Photos, tacky souvenirs and maybe a tan if you’re lucky; these are the things you want to bring back from your holiday, not credit card debt. Unfortunately, the post-holiday debt lag is an unfortunate reality many Aussies face.

How much post-holiday debt do Aussies have?

According to the finder.com.au survey, a whopping two million Australians have to pay interest on holiday credit card debt, which adds up to $139 million, each year. On average, 46.86% of Aussies manage to keep their holiday debts below $1,000, whereas 26.16% have balances that've crept between $1,000 and $2,000. 19.78% of holidayers accumulated between $2,000 and $5,000 debt, 5.27% clocked up between $5,000 and $10,000 worth of debt and 1.94% returned home with a whopping $10,000 debt. Unfortunately, when your holiday ends, these holidayers are faced with the reality of their post holiday debt-lag and everyday bills, costs and financial commitments.

How long does it take to repay holiday debt?

Half of the travellers who return home with credit card debt are able to pay it off within the first three months. Just one in five need between three and six months, paying an average of $117 extra in interest. A further 28% of Aussie travellers fail to pay their balances off within six months, meaning that half a million Aussies pay excess interest of $200 each. The worst offenders - 10,300 Australian travellers - clocked up debts of over $10,000 and took a year to pay it off, resulting in an interest bill of $811. Using a credit card to cover your holiday costs can be a wise way to manage your travel budget, but it won’t be worth it if you’re unable to repay your debt after your holiday without clocking up interest.

How can I pay down my holiday debt?

It's no secret that many Aussie travellers return down under with debt. So, how do we plan to deal with it? According to finder data, 61.05% planned to reduce their shopping and leisurely spending, whereas 16.32% of travellers planned to work overtime, pick up extra shifts or get a second job. 18.95% of respondents said they'd pay the minimum each month and 4.21% said they'd take out a loan. Considering that paying off the minimum repayment wouldn't be enough to consolidate your debt before the interest kicked in if you had a 0% purchase card and taking out another loan could only add to your debt burdens. Instead, it might be time to consider a balance transfer credit card. Unfortunately, only 13.95% of Aussie travellers take this route.

If you’re one of the travellers with a post-holiday debt that’ll take you between three to 12 months to pay off, a promotional 0% balance transfer offer could help you repay your debt without the additional burden of interest.

When comparing balance transfer offers, consider how much debt you have and how much you’d need to pay each month to pay it off before the promotional offer ends. Imagine you return from your holiday with a $1,500 credit card debt and are looking at a card with 0% balance transfer offer for six months. You’d need to pay $200 on your credit card each month to consolidate your debt by the end of the promotional period. If you’re unable to do this, you’ll have to pay the standard interest rate on the remainder of your debt.

As well as reducing the impact of debt-lag, repaying your holiday balance will also help you build up healthy credit and demonstrate your ability to repay to the bank. This will come in handy when you’re applying for a card for your next holiday or to help cover everyday costs.

If you have a holiday coming up, there’s no time better time than the present to start sorting out your holiday budget. Credit cards aren’t entirely risk free, but they can be a savvy option. If you compare your options before applying, take advantage of extra features such as complimentary insurances, rewards and airport lounges, and consolidate your debt while avoiding interest after your holiday, you can swap the debt lag for jet lag when you return from your trip.

Sally McMullen

Sally McMullen is a journalist at finder.com.au who is a credit cards, frequent flyer and travel money expert by day and music maven by night.

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