Paying for a holiday can be one of the most expensive decisions of the year, from the flights, hotels and travel money to the insurance and the unexpected costs that crop up.
Making the best financial decisions for your individual circumstances, and for those around you, is important in everyday life, but perhaps more so when planning a holiday.
When you pay for a holiday, there are a variety of factors to consider, including the current foreign exchange rates, whether to pay by cash, debit or credit card, and any additional charges that might come up for spending abroad.
Paying for flights: cash or credit card?
Some airlines and other travel companies, including ones that offer ferry and train journeys abroad, tend to add on a credit card surcharge at the checkout when you pay for flights or other journeys with them.
This surcharge is usually quite small, and not all travel companies will add it on. But it is worth considering this extra expense if you were planning to pay with a credit card.
With a credit card you are offered more protection than if you paid by cash or with a debit card. This is because of the Consumer Credit Act 1974, which protects the consumer on any purchase paid with a credit card, valued between £100 and £30,000.
This protection means that if an airline or travel company, goes bankrupt, or even cancels the flight and refuses to return your money, you can go back to your credit card company and ask them to refund you.
If you paid for the flights with cash, then you would most likely have to default to the terms and conditions of the airline you purchased them with.
Some credit cards also carry airmiles or Avios points. So if you pay for flights, and in many cases, everyday items at any shop, with that credit card, then you can earn Avios or specific airline points, which you can then use to redeem on future flights.
If you earn enough, airmiles, or Avios points can sometimes let you buy a flight for ‘free’, whereby you only have to pay the taxes and other charges, which usually works out considerably less.
However, each destination sets its own taxes and charges (and they can be very high or quite low depending on where you go), which you always have to pay. The points will only deduct from the fee charged by the airline.
You can also sometimes use them to upgrade your seat to a premium one or first class, so one of these credit cards could prove useful when paying for your holiday.
How to pay for accommodation
Just like with airlines, many hotels and other accommodation providers (but less commonly so) will add a surcharge for using a credit card.
Comparison sites offer many good deals on hotels but they usually come with less flexibility on the cancellation policy, so if your holiday dates are not set in stone, it’s best to avoid taking that risk.
If you’re looking to get a cheaper deal on a place to stay on holiday, take some time to do your research and look into other methods. Beyond hotels, many hostels offer cheaper prices, with some of them offering private rooms, and several new companies will allow you to rent private rooms or even whole homes from other people.
With the latter, you may not be protected as much as you would with a hotel if anything goes wrong, even if you pay with a credit card, as individual homeowners set the terms and conditions in conjunction with the company you’re paying.
Essentially, it can get more confusing for credit card companies to assess who is at fault. However, the savings could be worth the risk, so make sure you look at all of your options carefully.
Foreign exchange and spending abroad
When it comes to spending abroad, having cash in your pocket is always useful for the little things like paying for a taxi or leaving a tip in a restaurant.
So if you plan to buy some cash, try to do it a few weeks in advance so you can monitor whether the price is likely to go up or down. It also gives you a bit of time to find the best rate.
It should be obvious, but airports usually carry the worst rates on foreign exchange, so never leave it that late.
When you’re abroad, spending on your debit card and credit card will carry an extra charge, which is a small percentage of the transaction, depending on your provider.
However, these charges do add up quickly, so it’s best to generally pay for things with cash or to apply for a travel abroad credit card, which will allow you to pay with a credit card without any usage fees.
These credit cards default to the provider’s exchange rate, so you will usually get a ‘near perfect’ exchange rate. Check the provider’s rates before you go on holiday to double check that you can’t get a better deal at your local foreign exchange with cash.
Cash is generally the cheapest way to pay for things abroad, but it’s also less safe to carry around bundles of it in your pockets constantly. If you lose your credit card or it gets stolen abroad you can always ask the credit card issuer to put it on hold and send you a replacement.
It’s also important to note, that if you need emergency cash while you’re abroad, use your debit card, not your credit card.
Even the travel abroad credit cards with 0% usage fees still charge you the interest (APR) daily from the moment you take the money out of the cash machine.
Prepaid cards can also be useful. These are essentially top up cards that you load with money before you go on holiday. They offer the security that cash does not, but not the security that comes with credit card protection.
However, they usually have competitive exchange rates that often beat the high street foreign exchange companies.
It’s worth considering all your options and trying out a combination of two or three methods to cover all possible expenses.
Travel insurance and other costs
It’s usually better to be safe than sorry and to get travel insurance before you travel.
You can probably save money if you know how many holidays you plan to go in one year and where they will be. This way you can buy an insurance plan for a year, which normally works out cheaper than buying single trip plans each time.
Many comparison sites can help you see the differences between the levels of cover you will get, but it’s most important to look at the level of cover you will feel most comfortable with having while on holiday.
There are some unexpected costs that could come up like Dynamic Currency Conversion fees. This is a fee that gets added to your bill when you pay by credit card, and the server converts the total back to your currency.
If you’re abroad and you’re asked to pay in GBP, always ask to pay in the country’s currency to avoid the Dynamic Currency Conversion fee.
Are you heading off on holiday soon? Read up on how to use a credit card abroad before making any purchases.
- Travel Money Savings Tips – Information to help you with your finances before going on holiday.
- What’s the best frequent flyer reward: Avios or Virgin Miles? – There are two main credit card airline rewards schemes: Avios (the new Airmiles) and Virgin Miles, but which is better?
- Get the best euro exchange rate on a credit card – What’s the best way to spend as you travel around Europe? Take the euros as cash or spend on a travel credit card?
- What can I use my credit card for? There are some things you should definitely not pay for with a credit card