The world’s most famous travel destinations may be intriguing, but many are also expensive to reach. Unless you have a huge stash of airline miles and travel points, you will likely need to pay for airfare and lodging—even if you choose a hostel or something cheap. And, even then, you’ll still need to cover food, activities, and transportation costs such as taxis and trains. These expenses and others make travel a privilege not many can afford without outside help.
Not surprisingly, many aspiring travelers borrow the money they need to see the world. Typically, they do so via either a personal loan (see our monthly payment calculator for these below) or a credit card, although they may also borrow money from family and friends.
Is borrowing money to travel a good idea? Usually not, but that doesn’t stop some people who are determined to pursue their wanderlust. If you’re going to borrow money to travel, the best thing you can do is set some ground rules and research the best loan options available.
The Problem With Borrowing Money for Travel
Conventional wisdom says you should only borrow money for appreciating assets like a home or a business. There are some exceptions for depreciating assets such as cars. But travel is worse than a depreciating asset. It’s not something tangible you can see or feel, and it’s worth nothing to anyone but you.
But how much are your memories really worth? If you’re going to borrow money to travel, they need to be worth a lot. Depending on how much you borrow, you could be repaying your loan or credit card balance for years.
Remember that it’s not just what you borrow, you’ll have to pay back. You’ll also be on the hook for interest and applicable fees.
Because the average credit card now has an interest rate of 19.37%, these fees can add up fast. If you borrow $5,000 for a month-long trip to Thailand or a journey across Europe and take 10 years to pay it back at that rate, for example, you would have to pay $95 per month for 120 months at a total cost of $11,400
The Right Way to Borrow Money for Travel
Before you borrow money to travel, it pays to ask yourself if the long-term costs will be worth it. Do you want to make payments on your Mediterranean cruise five years from now when you may be saving for a home or trying to start a family? Probably not.
If you’re going to get a travel loan, you may as well do it the right way from the start. Here are some tips that can help you stay on track:
Use Rewards to Defray Costs
If you have good credit and the ability to plan early, you can also lean on rewards points to cover parts of your trip. It’s possible to earn enough points and miles to get your hotels and airfare covered if you have a strategy and stick with it. Explore rewards cards and their possibilities, and you can save money on any trip around the globe.
Set a Budget You Can Stick To
While you may not know exactly how much you’ll need to spend on miscellaneous expenses during your travels, you can and should make a travel budget. Start with your hotels and airfare and figure out how much they will cost. From there, do some research to figure out average food and activity costs for your destination.
Once you know how much your trip will set you back, you can secure the money you actually need. You don’t want to borrow more than required.
Compare Personal Loans and Credit Cards
The two most popular funding methods for travel are personal loans and credit cards. While a personal loan offers a fixed interest rate, fixed repayment schedule, and fixed monthly payment, a credit card will let you charge your trip as you go and repay only the amount you borrow. Credit cards tend to have higher interest rates than personal loans, but both financial products are easy to apply for online.
One of the benefits of travel credit cards specifically is that you may get valuable travel benefits such as trip cancellation/interruption insurance, baggage delay insurance, and no foreign transaction fees.
You can also use travel cards to earn travel rewards or cash back on your travel expenses, which you can use to defray your costs or save up for another adventure.
However, travel credit cards come with high interest rates that can make the costs of your trip rise dramatically. For that reason, you may be better off with a low-interest credit card or one that offers 0% APR on purchases for a limited time.
The Bottom Line
Whether you decide on a credit card or personal loan, make sure to compare all your options and how they stack up in terms of rewards, perks, interest rates, and rewards. The world awaits, but the best trip is one that doesn’t ruin your finances.