Credit cards Updated:
There's nothing better than the prospect of jetting off on a much-needed holiday.
Even though many will wait for last-minute deals, families with children who are tied to specific holiday dates might prefer to book as far in advance as possible to ensure they get the holiday they've been dreaming of.
Booking a holiday can be an exciting time, but no matter when you choose to take the plunge, it's important not to overlook how you'll pay for it.
Most purchases made on a credit card benefit from enhanced purchase protection under the terms of the Consumer Credit Act. Read more about what to do if a company goes bust.
If the travel provider goes bust and you haven't got travel insurance, you can still claim all of your money back from your credit card provider, even if you only paid for the deposit by card and the rest of the balance in cash. But, as per Consumer Credit Act rules, remember that this only applies where the cost of the holiday you are buying is more than £100.
[Note: if you purchase your holiday via a travel agent, you may only get this level of protection if you buy their full suite of travel arrangements, such as a package holiday. If you just buy an airline ticket, for example, credit card protection may not apply, as the agent is only the supplier of the ticket and not of the flight itself.]
There are further benefits, too, particularly if your card offers a generous cashback or reward scheme.
However, you need to weigh up any rewards you may receive against any credit card charges that the tour operator or travel agent may charge. Many tour operators or travel agents still charge credit surcharges, for example of 1.5% of the cost of the holiday. This used to cover them for the credit card fees they incur for using either the Visa or MasterCard systems. However, these fees are now capped at 0.3% of the cost of the credit card transaction, so anything they charge you above this level is difficult to justify, but is still common.
Borrowing money to go on holiday is not the ideal solution. However, for many people, spreading the cost of a holiday on a 0% credit card is the only way they can afford a family getaway. If this sounds like you, make sure that you use a credit card offering a long introductory 0% interest period for purchases.
Be sure to set yourself a repayment plan. It's important that you pay off your holiday before the end of the 0% interest period, and preferably before you need to book next year's holiday, otherwise you risk a growing debt that will only become harder to manage. A few credit cards will let you set up a direct debit for a fixed percentage, and many will allow a standing order for a set amount.
Clearing your balance by making these automated payments will go some way to helping you achieve the discipline needed to repay your holiday debt.
The earlier you start saving, the easier things will be when it comes to booking and paying for your holiday. Saving in small weekly or monthly instalments is essentially what you are doing when you make repayments on your credit card, so why not get ahead of the game and save some money now?
The first thing to do is to open a new savings account. When comparing savings accounts, remember that you will probably need access to your cash at least twice, first to pay the deposit when you book your holiday, and again to pay the balance (generally around 12 weeks before you're due to depart). An account that allows you to make regular deposits is also a good idea, thereby allowing you to make small regular payments each time you get paid as opposed to one lump sum, and meaning you're able to build up your holiday fund over the year.
A regular savings account could be a great way to kick-start the savings habit and ensure you squirrel away a bit each month, or if you're planning in advance for a big trip abroad, then a short-term fixed-rate bond may be a good idea.
Bonds that run for six months to a few years offer good returns, with a number allowing early access to funds. It is always worth checking your chosen account's terms and conditions, however, as penalties will often apply for withdrawing funds within the term of the deal.
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Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.
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