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Can you justify a vacation when you're in debt?

 
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August 19, 2013
Ask Eva
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QHi Eva,

What should I do? I have struggled with credit card debt for years. I owe almost $15,000 across four cards, so I've pretty much accepted that I am going to be in debt for several years. I am paying it down at $500 per month. But I would like to take a vacation. I haven't had one in many years. I want to go to a friend's destination wedding in Las Vegas in January. It would be a four-day trip, and with flights and hotel and food everything else, it would cost┬áme around $1,000. I have enough in the bank to pay for it, and I promise I won't gamble. I just have this nagging feeling that it's a stupid thing to do when I have so much debt — but am I really┬ánot supposed to take a vacation at all until it's paid off? And what are some things I can do to make this trip an OK thing in your expert opinion? – Jayme

ADear Jayme,

Well, good for you. You're listening to that quiet little voice urging you to reconsider spending $1,000 on a destination wedding when you're $15,000 in credit card debt.

It sounds like you're in a transition phase where you're starting to realize that the spending habits you've had in the past haven't served you that well.Ask Eva

What often lands us in financial trouble is the feeling we're entitled to do what everyone else around us is doing. Your friends can go to that wedding, so why shouldn't you? Everyone else goes on vacation, so why shouldn't you be able to? Because you have the money in the bank, it's particularly tempting.

No one can tell you if this is an OK trip to make or not. That is for you to determine. And the best way to determine that is to think through what your other financial priorities are.

Just because there's money sitting in your bank account doesn't mean that you have the money to spend. If the money is needed for other things, you'd be trading those items, or even your peace of mind, for a four-day thrill ride.

Before booking anything, ask yourself these questions:

1. What is your current credit card debt costing you? For the sake of example, let's say that the annual percentage rate on your credit cards averages 18 percent. If you run the numbers, you will see that, at your current payment rate of $500 a month, you will be debt free in three years and six months. During that time, you'd be paying $5,077 in interest charges. That's an average of $123 a month or almost $1,500 a year that goes out of your pocket and into the bank's coffer, which you derive no value from whatsoever.

2. Are you OK with paying those interest charges? Once you realize what you're paying the bank each month, check in with yourself to see how that makes you feel. Are you OK with paying what is essentially the cost of a nice vacation each year to the card issuer for almost four years?

3. What are your options for paying the debt down faster? Let's say you used that $1,000 to make a big lump sum payment on your credit card debt and upped the monthly payments to $600. Run the numbers again, and you'll see that you'd be debt free in two years and five months, shaving a whole year off your debt incarceration. During that time, you'd be paying $3,360 in interest charges, a savings of $1,700 (nearly twice the cost of your Vegas trip) over the plan you're currently on.

4. Are you prepared for a rainy day? If you spend the $1,000 on the Las Vegas trip and suddenly have unexpected expenses or lose your job, would you have any other savings? The people who are most vulnerable in the face of unexpected events are the ones without any resources to fall back on. If you blow your savings on the trip only to put expensive car repairs on a credit card a few months later, you'll be far worse off.

Experts recommend having at least six months of living expenses stashed away in a savings account for emergencies.

5. What's on your “Top 5 most-wanted” list? Once you've answered the basic questions above, you'll have some idea of how you feel about the cost of your credit card debt and how financially secure you really are. The final step is to consider your long-term financial priorities.

If you don't have it already, create a list of your Top 5 priorities for what you'd like to have or do over the next two to three years. If you were debt fee and were to make a plan for how you'd spend your money going forward, what would be on your list? A yearly vacation? A bigger, nicer apartment? More money in your retirement account?

Continuing education to boost your job skills?

Determining your overall priorities will give you the perspective you need to weigh the consequences of spending $1,000 on a trip to a destination wedding. You might just find that some of your other financial goals are more important to you and that staying put will ultimately give you something that money just can't buy: greater financial peace of mind.

Got a question for Eva? Send her an email.


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