While saving up for a holiday is always going to be the most cost-effective method of paying for it, a growing number of people are turning to credit to cover the cost. However, that doesn't mean they're getting into debt – research from Halifax shows that the vast majority of those who use credit cards to fund their trip have paid off the balance before they've even left the country!
The research found that credit cards are now the most popular way to pay for holidays, used by 56% of respondents, compared with 30% who use their savings to pay upfront, and just 6% who pay in instalments via direct debit (such as to a travel agency). However, most aren't using cards to spread the cost for any length of time – 84% of those who use cards said that they repay the balance in full before they jet off, with only 16% paying it back once they return home.
Instead, 51% said that they use their credit card so they're protected by Section 75 of the Consumer Credit Act, whereby the credit card provider takes on some of the responsibility should the supplier breach its contract. However, others may be tempted by the numerous additional benefits of paying by card these days, with cashback and related rewards being huge incentives.
Cashback credit cards give you the chance to earn something back on everything you spend – and given that the typical holiday can add up to a pricey sum, you could easily get a decent amount straight back in your account. For example, the Platinum Cashback Card from American Express offers cashback of 5% for the first three months, capped at £125, which means your holiday of £2,500 would instantly give you £125 back.
Then there are cards that offer Avios rewards, making them particularly suitable for frequent travellers – the British Airways Card gives you 5,000 bonus Avios if you spend £1,000 in the first three months, again making it ideal for that all-important holiday purchase. However, with these kinds of deals, you need to make absolutely certain that you're one of the 84% who repays the balance in full when the statement arrives, otherwise the interest will outweigh any benefits earned.
Alternatively, if you want to use credit to spread the cost of your holiday, just make sure you've got the right card for the job. In this instance, the only viable option is to use a card that charges 0% interest on purchases – that way, you can repay the balance in monthly instalments, without needing to worry about interest adding to the cost.
Be sensible when it comes to the term you choose, too. While it's possible to get up to 32 months of interest-free purchases – which is currently available through the AA's Dual Credit Card MasterCard – you may not want to still be paying for this year's holiday in almost three years' time, so opting for a shorter term may be prudent.
And what if you want to use plastic when you're abroad? Again, finding the right deal is crucial – you'll need a travel credit card or prepaid card that's specifically designed for use abroad, as that way, you needn't worry about excessive charges or exchange rates.
"For the majority of holidaymakers, credit cards have become an indispensable method of payment, rather than a way of borrowing for a longer period of time," said Jon Roberts, director of cards at Halifax. "Credit cards don't have to be more expensive if paid off in good time, and some can even save considerable amounts if you choose the best credit cards for travel abroad, compared to more costly ways to get access to foreign currency.
"With the number of trips we make overseas up 8% in the last year, getting a good deal matters. Holidaymakers should shop around for the best deals – considering the best credit cards for their travel plans in a similar way to how they might shop around for the best hotel deals, or minimise overseas fees for other services like data roaming. Meanwhile, the minority who do need to spread their holiday costs for longer, beyond their return, should also consider a card with an initial interest-free period, if they can make sure they pay back the balance before this ends."
It all comes down to doing your research to make sure you've got the right card for your needs, so start the process by heading to our Best Buys to track down the best credit cards for your holiday.
Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.