How to avoid debt lag this holiday season

Would you like to be almost $3,000 in debt when you come back from your summer holiday in January? Not likely! But according to money expert Paul Clitheroe, it's quite possible many Australians will be. Writing for AMP, he pointed out 41 per cent of Aussies returned from holidays in debt in 2016, with $2,705 being the average amount owed.¹

Arriving home after a holiday and going back to work is bad enough without thousands of dollars of credit card debt entering the picture. If you're able to pay it off, it's all well and good, but if you fall behind on your card repayments resulting in a default, you could have a black mark listed on your credit report. To avoid this situation and help ensure your credit health remains intact, we've put together some tips to avoid holiday debt so you won't wake up with thousands owing on your credit card when January rolls around.

1. Budget wisely

We all factor in the costs of accommodation, flights and meals, but sometimes some important things escape our pre-trip budgeting efforts. It's important to think of everything when saving for an upcoming holiday, including any visas you may need, travel insurance, emergency spending money, and entry fees to museums and other sights you'll be visiting.

2. Get travel insurance

Travel insurance is an additional cost you may feel isn't necessary, particularly if you're a younger traveller. According to the Australian Securities and Investments Commission (ASIC), 15 per cent of 18-24 year olds travelled without travel insurance on their last trip.²

However, if something happens during your holiday, not having travel insurance could cost you a lot. Should your baggage get lost in transit you'll need to buy new clothes, toiletries and other essentials. And if you have an accident or fall ill and need emergency medical care, you'll need to fork out the money for that too. The cost of a stolen wallet or a cancelled flight might not be much in the long run, but hospital care could be ongoing and possibly put you in debt for months after your trip ends.

3. Save up beforehand

ASIC suggests that instead of relying solely on your credit card to pay for your holiday, you should try saving up as much as you can before you go.³ This way, you won't have so much to pay off when you return.

Ideally, you should have set aside money throughout the year that will cover your expenses, and use credit for emergencies. When you return from your holiday, all you'll have to deal with is going back to work - not paying off your credit card.

4. Check foreign currency conversion fees

If using your credit card is like second nature to you, you won't bat an eyelid when you go to take money out of a foreign ATM. But it's important you know what you're being charged when you do this - a lot of credit cards charge exorbitant foreign currency conversion fees each time you use them.

Check with your credit card provider about these, and look into other cards with lower fees to see if you can find a better deal. Alternatively, consider getting a travel money card you can preload before you go. 

5. Hack your holiday

One way to minimise the costs of your trip are to do things differently. Instead of visiting the museums and sights every tourist visits that cost a fortune in admission, opt for free or more budget-friendly alternatives. In the process, you'll not only save money but have a unique travel experience.

Take advice from expert budget travellers such as "Nomadic Matt", travel blogger and author of "How to travel the world on $50 a day".⁴ Guidebooks by travel publishers like Lonely Planet are great at comparing different alternatives, giving you expensive, mid-range and cheap options so you can work to your budget. They also have forums where you can discuss your trip with those who have embarked on similar ones before and offer you tips and advice.⁵

Don't let debt lag affect your credit health. If you accrue debts more than $150 and don't pay them within 60 days, they can be listed as defaults on your credit report and could affect your chances of receiving credit. Order your free credit report from Equifax today or check out Equifax's range of subscription plans so you can see where you stand.

Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstance before acting on it, and where appropriate, seek professional advice from a finance professional such as an adviser.

¹ AMP. The holiday's over for credit card debt. Accessed November 2017.
² Australian Securities and Investments Commission. Australians and Travel Insurance. Accessed November 2017.
³ Australian Securities and Investments Commission. Saving for a holiday. Accessed November 2017.
⁴ Nomadic Matt. Nomadic Matt's Travel Site. Accessed November 2017.
⁵ Lonely Planet. Thorn tree forum. Accessed November 2017.