Up to 15% of People are Financing Their Package Vacations Every Month

Each month between 10% and 15% of United Vacations sales are made on credit. Since the same credit provider services AA Vacations I assume the results there are similar, though I don’t know their numbers specifically. I found this disconcerting, but not surprising.

Isn’t it a little bit jarring that so many people are financing their vacations? I can think of a few explanations where the decision would be perfectly reasonable:

  • Income smoothing. Maybe you’re waiting on a year-end bonus, but it makes sense to book travel during peak periods in advance. You’re going to get the bonus over the holidays and travel over the holidays, but finance the trip until then.

  • Asset rich, cash poor. You’ve got the money to cover a vacation, but it’s not convenient to liquidate assets right now to pay for it – maybe funds are locked up in private stock, or you’ve got capital gains you don’t want to recognize immediately.

  • Despite best advice you’re going to finance a trip anyway, and you’re looking for better terms than your credit card offers.

Is it too Puritan of me to think that people ought to deny themselves a vacation unless they can afford to pay for it? I actually think the first two ‘reasons’ I give above count as being able to pay for it. But if you’re struggling to make ends meet, and can’t cover airfare or hotel, that maybe it would be better to stash away an emergency fund to cover car repairs or possible unemployment if the economy turns south?

Many years ago I wrote that credit card rewards aren’t for you unless you’re able to pay your cards off each month – and the cards themselves don’t encourage spending more than you otherwise would. I like to think that’s how we all behave, but the numbers suggest otherwise. It’s almost enough to make one sympathize with bad advice from Dave Ramsey.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. Yes it is a bit too puritan when you don’t know the motivation, reasoning or result for the use of credit. My husband has carried significant revolving card debt for the 16 years we have been together and has consistently held 800+ credit score. Obviously he can handle his spending well. Perhaps his choice is not wise, considering interest costs but its his choice.

  2. Curious, what was your source for this? Is there an outside lending agency for financing vacation packagers?

  3. Expanding on Gary’s point, it is almost a universal principle that living beyond one’s means using credit is a bad thing.

  4. One of the reasons wise users can reap such lucrative credit card rewards is the interest charges paid by others.

  5. Can’t recall where I read it, but the average 6-night vacation for a family of 3.4 persona (or something like that) who vacation OFF-site at DisneyWorld costs $ 5,700. An on-site DisneyWorld vacation (not in the the budget All Star resorts) in a moderate to expensive resort for 3.4 persons is just shy of $10,000. These figures include rental car, food, and economy class flights.

    How many people do you know who have that kind of cash sitting in the bank to pay for it all in one go? Well, maybe you know more than a few, and so do I–although we would still charge it all and pay it off at the end of the money to get the best value in FF points–but nonetheless, most folks in America don’t have that cash available.

  6. America is an indebted nation. Starts with our governments ( state and federal), and ends with us. This is just the way it is in America. Don’t expect people to be different than their leadership.

  7. @Gary, No I agree with you 100%. It is not wise for people to live beyond their means, especially going into debt to take a vacation. Delayed gratification is a good thing. Many people and different cultures have understood this. For example in Chinese, it is popular to say that it is a good thing to suffer and go through hardship while we are young. The people who have been (and stayed) the most successful around the world have learned this lesson.

  8. @Amapas – it appears that your husband is paying gob and gobs of interest to finance former comsumption. While creditors my heve confidence in the likelihood that he will pay according to terms and conditions, hence a strong credit score. he is not handling his spending “well”.

    @KimmieA – indeed, a minority of families don’t have $10,000 cash available for a Disney vacation (or any other discretionary spending). It would all be different if the prevailing attitutde was to defer gratification until the money is there.

  9. In the early 1980s I was working in my father’s pizzeria in Ohio when one employee and her husband decided to go to Israel’s Holy Land on vacation. We wondered how she could afford it, even with her + her husband’s salaries. I said that maybe she’s getting a “Vacation Loan,” as one bank or finance company was advertising. Dad answered that it was rude to insult her intelligence by suggesting that they’d do something so stupid–but that’s exactly what they did!

  10. Two months of paying interest neutralizes (or worse) the earnings for spending on almost any of these cards! Worse yet, if you haven’t paid last month’s balance in full, some cards will start charging you interest IMMEDIATELY on new purchases!

  11. Hey Gary
    Hope you and your family have had a nice Thanksgiving/Black Friday weekend. We’ll see what Cyber Monday holds.

    Our strategy has been to obtain competitively priced flights first (points, miles, AmEx Plat), get that paid for, then move on to local accommodations (again with AmEx Plat/FHR, etc), which then leaves paying for local transport and experiences on the ground (dining, sightseeing, local attractions), all of which get paid in full within the billing cycle for each expenditure. Lather, rinse and repeat 2-3-4-5 times/year, as applicable. Works out great for us. YMMV

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