Best ways to pay for your summer holiday

Summer holidays abroad can be cripplingly expensive, particularly if you have a family and have to pay the added premium for jetting off during the school holidays. The good news is, if you’re looking to spread the cost, there’s never been a better time to book.

Santorini holiday with blue sea and white walls

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So, pop on some sunglasses and take a look at the best ways to pay for your holiday – from 1 to 5 – while staying in tight control of your finances.

1. Use your disposable income or savings

Paying for your holiday using your disposable income or money you’ve saved up is the most attractive option, simply because it means you won’t be getting yourself into debt before jetting off.

However, even if you have the cash in the bank, it could be worth using a credit card to pay for your vacation to take advantage of the buyer protection you get from whacking it on plastic. In short, if you pay for your holiday using a credit card and the holiday company goes bust, you’ll be able to claim the money back from your card issuer.

Even if you only pay for the deposit on your card, as long as the full cost of the holiday is between £100 and £30,000, you’ll be covered by the Consumer Credit Act 1974. Even if your getaway sets you back between £30,000 and £60,260 – that’ll be some getaway – then you’ll still be covered under the terms of the Consumer Credit Directive.

Once you’ve made the payment on your card and that protection’s in place, you should use the money you’ve set aside to pay off the balance in full to avoid paying any interest.

2. Cashback credit card

If you’re going to use a credit card to pay for your holiday, and then clear the balance before you’re charged interest, you may as well try and get something back in return while you’re at it – so a cashback or rewards credit card could be the way to go.

The American Express Platinum Cashback Credit Card offers up to 5% cashback on up to £2,500 during the first three months – meaning you could bag yourself as much as £125 just for using the card.

Once this three-month honeymoon is over, you’ll be eligible for 1.25% cashback on purchases and if you’re a big spender who splashes out over £10,000 on the card each year, you’ll get 2.5% cashback in your anniversary month.

However, make sure you pay off the balance before you incur any interest as APR is set at 14% (variable), rising to a representative 18.5% (variable) when the £25 annual fee is factored in.

If you hold a Nationwide FlexAccount, FlexDirect or FlexPlus Account, the Select Card is worth a look. Although it comes with just 0.5% cashback on purchases, it does offer unlimited commission-free purchases abroad, making it a good option to pay for your holiday and to make pay while you’re away.

In fact, this card is a bit of a special deal all round, so check out more detail in Melanie Wright’s article.

3. Rewards credit card

If rewards are more your thing, Barclaycard’s Freedom Rewards Card gives one point for every £1 spend on the card, at home or abroad so you can continue to rack up the points while you’re away.

It also offers with two points for every £1 spent at any UK supermarket or petrol station, three points for every £1 spent at selected retailers, and if you spend £500 within the first three months you’ll get £30 worth of high street vouchers.

As ever, you should pay the balance in full at the end of each month to get the best out of this type of card, as the standard APR sits at 18.9% (variable).

If you regularly shop at Sainsbury’s, the Nectar Credit Card could be a good option as it gives you the chance to collect double Nectar points on your Sainsbury’s shopping, two Nectar points for every £1 spent on Sainsbury’s fuel and one Nectar point for £5 spent on your card elsewhere. Representative APR on this card is 16.9% (variable).

And if you’re a regular flyer, it might be worth checking out the Virgin Atlantic White Credit Card or the Lloyds Bank Avios Rewards Credit Card, which offer Flying Club miles and Avios respectively.

4. Interest-free purchase credit cards

Alternatively, if you could do with spreading the cost of your holiday but could do without paying interest, it’s worth considering paying with a 0% purchase credit card.

Santander’s Credit Card for Purchases and Tesco’s ClubCard Credit Card for Purchases currently offer the market-leading deals with 18 months at 0%, before jumping to a representative APR of 18.9% (variable).

While Santander’s offer of nine months at 0% on balance transfers (subject to a 3% fee) beats Tesco’s three month deal (subject to a 2.9% fee), regular Tesco shoppers may favour the ClubCard Credit Card as it offers standard ClubCard points when you spend at Tesco and one point for every £4 spent elsewhere.

5. Personal loans

If you need to take out a loan to go on holiday, you’re probably best off reconsidering your travel plans. That said, if you’re certain you’ve got the cash coming, loan rates are currently at their lowest levels ever, so if you were to tap into this resource you probably couldn’t have picked a better time.

Sainsbury’s Bank, winner of Best Loan Provider at the 2014 Supers is offering rates of 6.1% on loans of £5,000 taken out over three years.

If you go through Zopa, a peer-to-peer lender, you could even pick up a rate as low as 5.6%.

Considering a staycation?

Even if you’re looking at staying in the UK this summer, holidays at home often don’t come cheap, so make sure you work out exactly what you can afford before you pack the car and head for the hills. Or the coast. Or the city.

When it comes to booking your holiday, it makes sense to book your travel insurance while you’re at it. Not only can sorting it early get you a better deal, it can also cover the cost of your holiday if something goes wrong and you can’t get away.

And if you’re driving to your destination, whether at home or abroad, make sure you’ve adequate car insurance and breakdown cover – you never know what’s round that next bend.

Please note: any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.

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