While saving for your vacation is ideal, you may have other financial commitments that require attention. In such times, you can always resort to taking a vacation loan, which is essentially a personal loan for the purpose of travel.
As any loan, travel loans will add to your debt burden. To ensure that you have your debt management planned, here is a guide to plan your vacation finances.
Make a Budget
The first step is to make a detailed budget preferably estimating 10 to 15 per cent higher costs to factor in the change in dollar rates and inflation. Include all costs starting from transportation costs to shopping estimates. Do not forget to factor in visa, currency conversion, travel insurance, international SIM and other related costs as well.
Divide Advance and On-The-Spot Expenses
Separate advance payments for your vacation from the on-spot expenditures. For instance, flight fares, prepaid hotel bookings, train and bus bookings, concert tickets, city passes etc., which have to be purchased before your holiday starts, should be calculated as advance costs. You will need this money at least two to three months before your holiday and in some cases like flight tickets, even earlier to get the best deal.
The rest will come under on the spot expenses like food, local travel sightseeing, tour guide costs, shopping and more. This will be the amount you or your fellow travellers need to carry either in cash, credit card or travel cardwhile on vacation. Add some extra funds to this amount for unexpected costs.
Assess How Much Credit You Need
Once you have your budget divided, assess how much you need immediately to start your bookings and how much will you require as you embark on the trip. Start with flight bookings, which will comprise a major share of your expenses and try using your existing funds. If you feel your existing savings cannot be withdrawn or is not enough for flight bookings, add it to the credit requirement.
Likewise, see what aspects of the trip you can cover with your savings, and how much additional credit you require for yourself and your family, if they are travelling along. The total credit required need not be taken by you alone. Your co-travellers such as your spouse can take an additional loan as per their eligibility.
Work Out Payment Plan Post Vacation
Once you have assessed how much credit you need, calculate how you would like to pay it back. You can opt for a longer tenure to have smaller EMIs but may end up paying more in terms of interest. Make sure to check out pre-payment charges in case you think you can pay off larger chunks in between the tenure. It is recommended that you factor in your monthly expenses and yearly financial commitments and then assess the debt burden you can take.
(Adhil Shetty is CEO of Bankbazaar.com)
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