Burdened by record debt, should Americans really travel this summer?
A new report says we're running up a tab on our credit cards
Are you too deep in debt to travel?
The latest numbers from the Federal Reserve suggest you might be. This week, it reported that revolving credit, which mostly includes credit card balances, surged almost 20 percent to just over $1 trillion in April.
That's a record.
Travelers are part of the problem. A new survey by LendingTree says 29 percent of Americans may go into debt to take a vacation. It's less than last year but still high.
Maybe too high.
Should you still get out there this summer, even if you have to go in the hole to travel? My instinctive answer is "no" — you should never put a nonessential leisure activity ahead of your financial health. And at a time like this, with markets plunging and inflation swirling, definitely not.
But I may be in the minority. Fact is, many reasonable consumers have a different opinion. I think there are a few red lines when it comes to debt and travel. With the summer vacation season just ahead, this may be the best time to review them. The final decision is up to you, of course.
Did you catch our discussion the Fed report?
We had a riveting discussion about the latest debt numbers and what they mean for you. Thank you for your insightful comments.
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When it might be OK to get into debt to travel
This summer is strange. Many Americans haven't traveled in years. So for them, a summer vacation may seem like more of a necessity than ever.
So if you feel you have to get out there, here's what the more permissive financial experts say: Go ahead. Take on a little debt. As long as you're making regular payments — not just the minimum — you're fine. A long-awaited vacation is a good enough reason to go into the red, for the more liberal financial experts.
Travel doesn't fall under the category of "good" debt. It's not an auto loan, mortgage or student loan. But I'll admit that for some people, it is an investment — maybe in themselves or in their mental health.
So if that's you, and you absolutely have to travel this summer, then some liberal financial experts will tell you to take the plunge. Never mind the high annual percentage rate on your plastic. Plunk down that credit card and have a good time!
They may have a point. If ever there were a time for a waiver on the don't-go-into-debt rule, it might be now.
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When it's definitely not OK to get into debt to travel
But if you're already carrying crushing debt, this isn't the summer for a bucket-list vacation. The plane tickets and hotel rooms are just the beginning of your financial obligations. Other incidentals will set you back by even more this year because of inflation.
If you don't think you can make regular payments, stay home.
The other red line? Loyalty programs. Some of you, dear readers, like to play the points game. You already know how I feel about these programs. If you don't, here's the Reader's Digest version: They're addictive and deceptive, and they make travel more expensive for everyone.
But going into debt to get points is a special kind of madness. If you're booking travel just for the points and thinking of making the minimum payment on your card, please, please think again.
When you go into debt to buy travel on your points-earning card, your credit card wins. Your airline or hotel wins. And you, with your credit card debt — lose.
The truth about debt and travel
It would be too easy to ignore the warning signs like the latest Fed report or my rant about red lines and lyin' loyalty programs. But here are my thoughts on this issue.
The travel industry likes to present its products as "must-haves." They offer once-in-a-lifetime tours and bucket-list cruises.
That's promotional hype.
Yes, travel is important, but it's not essential. So when you hear a talking head on TV telling you this is the summer for a vacation, change the channel. The travel industry wants you to think a summer vacation is essential because it's essential to the industry's bottom line.
American travelers have a peculiar relationship with debt, especially credit card debt. Credit card loyalty programs incentivize them to buy more. And when travelers see these points accruing in their account, they've been programmed to think, "FREE TRAVEL!"
They don't associate the sky-high interest rates on their card with the cost of the program.
We've been hearing the same lies for generations. The latest credit card prophets, the loyalty program bloggers, are happy to show you how to spend more to earn even more points. They won't tell you that your bank or airline can remove these points from your account for any reason. Nor will they disclose that redemption levels can rise anytime, wiping out the value of your points portfolio.
But I will.
So when I hear about people taking on debt to travel, I see red flags flapping in a hurricane. I see the hard-working people who read this site making ill-advised purchases and paying dearly.
What do they get for it? A chance to be part of a suffocating crowd this summer and collect points that will lose value over time until they're worth almost nothing.
And also, they get a lot of unnecessary debt.
Bottom line: Resist the temptation
Remember last year when banks started panicking because their customers were paying off their credit card debt? Many banks introduced new programs designed to entice their customers to spend more and presumably get themselves deeper into debt. They also sent more unsolicited offers to American consumers by mail.
Well, it worked.
But it doesn't have to continue working. If there ever were a time to take a stand and say "no" to debt, this is the moment. Banks are making billions from our collective desire to travel again.
It's great for them, but not so great for your financial health.
Are you taking on debt to travel this summer?
I'd love to get your perspective on this. Are the deals just too good to pass up? Do you need those extra points? Or are you taking a hard line on living beyond your means this summer? The comments are open.
About the art
Dustin is traveling this week, so all we have is that Fed chart. Not as exciting, I know!
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