The average vacation cost for one person in the United
States is a little under $2,000 per week. More than a third of summer vacationers, 36%, are
willing to take on debt this summer for their travels. The reason that's worrisome is because the average
credit card charges over 20%, which is close to a record high. I don't want to tell people they can't
have any fun, but this represents a lot of people taking on expensive debt, and this is the kind of
thing that can linger. Globally, 72% of millennials and 65% of Gen Zs said
they plan on spending more on leisure travel in 2024, compared to 2023. In the US, 47% of millennials and 42% of Gen Zs said
they plan to take on debt to go on summer vacation. There are so many compelling reasons why people choose
to take on debt to have these

vacations. If your kids are dreaming of going to
Disney World, and there's no way the family could ever really swing it without going into debt, it
could be a memory the family will have forever. Parents often can rationalize spending in these terms
for their children. Here's how Americans are paying for their summer
vacations. Credit cards are the most common way people pay for
their vacations. 62% of Americans surveyed said they put at least some
of their trip on a credit card. Financial experts say that this can be a risky move if
the borrower cannot pay the balance in time to not be charged interest. The average credit card balance is already over $6,000,
according to TransUnion. If you add $1,000 in vacation expenses to that, maybe
it feels like a drop in the bucket, but it just makes it that much harder. That's $6,200 if you make minimum payments at the
average interest rate of 20.7%.

you're going to be in debt for 18 years, and you're
going to pay more than $9,000 in interest. So some of this is making a bad situation worse. The debt feels like this trade-off for a lot of people. It's ultimately the interchange between money for
these lifelong memories and seminal experiences. And that's a sacrifice many are not only
willing to make, but feel so strongly in doing so, especially when debt is a weight many people
are already accustomed to carrying. Consumers are still out there using their credit cards. Their credit card balances are over $1 trillion. Now we're seeing actual delinquencies on credit now
rising. People are dipping into their savings. But the bottom line is that they're still spending. Not all credit card users are paying interest. 43% of Americans said they use their credit cards to
pay for their trips, but paid it off in full to avoid interest. This also comes with the perk of
accumulating rewards points.

Use those rewards points and miles. Put those to use, but it doesn't make sense to pay 20%
interest just to get 2 or 3 or 4% cash back or airline miles. In order to avoid interest while still having more time
to pay off the credit card balance, some vacationers choose to open a new credit card that provides them
with 0% interest for a set period of time. The risk here is that once the term expires, the rate
goes way up. Another option vacationers are considering is taking
out a loan for their trip. 5% of vacationers plan to take out a personal loan
from a financial institution, which typically carries a lower interest rate than credit cards. The average interest rate of a personal loan in June
2024 was about 12%. 6% of those surveyed said they planned to borrow from
friends or family. I think both of those represent a slippery slope. Personal loan rates have gone up a lot.

That debt equals irresponsible is so pejorative and such a simplistic way of looking at this that there's all different reasons and rationales why we might intentionally go into debt. People don't think taking out a mortgage for a home and making this lifelong investment is irresponsible, but it can be a really bad investment in a lot of cases. So you have to consider where is it important for you to invest your money? And maybe it is this trip with these lifelong memories with your family that you'll never get back. Another option is loaning money to yourself out of a 401 K account. A loan is different from a 401 K withdrawal. Withdrawals have different rules and tax implications. Loans are not permitted from IRA or IRA based plans. The reason someone may go this route is instead of paying interest to a financial institution, they would pay themselves back over time with interest. That payment will go back into their retirement account and eventually accumulate compound interest.

Borrowing from your retirement plan definitely worries
me, because really, the biggest predictor of future returns is time in the market. So even though we don't know what stocks are going to
do this week or this month or this year, over the long haul, they've been massive wealth builders. So I feel like that would be more of a last resort if
there's kind of an emergency going on. Vacation is not an emergency. It is interesting how, while you could say on one hand
that it's worrisome that credit card balances are near record highs and the personal saving rate is near a
record low, this is powering a lot of economic growth. But what's good for the economy is not always good for
your household finances. Consumer spending makes up nearly 70% of US GDP, which
means a rise in consumer spending can spur economic growth. But a rising consumer debt can lead to a hard
pullback in spending, which can cause what's

called deflation. Deflation is just generally associated with not just
recessions, but deep recessions in the economy. A recession occurs when there's, quote, a significant
decline in economic activity that is spread across the economy and lasts more than a few months. Historically speaking, deflation means that prices are
actually coming down. And the reason why prices are coming down is because
people aren't spending money. The reason why people aren't spending money is because
they don't have jobs, and they can't afford to go out and take a trip to Hawaii or go out and buy a new
Lexus or do those kind of things. They're just kind of trying to tread water and they're
not even doing that. So therefore prices are going to have to keep coming
down. It's important to remember that there's not just one
consumer story. You have the same consumer that might be out there
spending on travel.

Going to events, you know, whether it's concerts or
sporting events, which we are seeing very, very clearly. And that's driving some of these travel
trends. And they're doing it in a way that's really strategic. At the same time, that same strategic consumer might
be walking into a store and really thinking carefully about how they're spending, looking for the best
promotion, the best discount. So it's it's not one story for the consumer. And I think that's really important because it creates
a lot of complications in the narrative. Because you have consumers looking for discounts, you
have consumers looking for promotions, and you have consumers that want to make their dollars work the
best they can in the way that works for them. Financial experts say the key to affording a vacation
is to plan ahead. Advisors say the first step is figuring out what you
want to spend and to set a budget for the trip.

This is our allowance for food, and this is our
allowance for trips or activities. So you can kind of make sure your behavior is
consistent with your values, because money on trips can feel like monopoly money. I had a client I worked with who decided they were
going to stay in an Airbnb, and they were going to cook all of their food, so they were going to save on food,
and they were going to splurge on this boat trip they were really excited about, and it felt like a
compromise. The next step after establishing a budget would be
making a plan to save. You can start small and daily. Maybe you're going to set aside a little bit of money
each day or each paycheck to this dream vacation, and it can be helpful to have kind of a calculation
set up. On top of setting aside the money, you can also find
small ways to save on costs to make the most of your trip. There are plenty of ways to save.

You can have fun on a budget. You can use your frequent flier miles or credit card
points. You could be open-minded about when and where you go. Kind of zig when others zag. Maybe travel in the off-season or the shoulder season,
or drive instead of fly or travel midweek instead of on the weekend. If you can let the deal dictate the destination, that
can really help you out. Flexibility is key. There's times when you just have to be realistic. If you financially can't swing a vacation, can you get
creative? Can you find a way to take a break from your life or
mimic a vacation without the big expense? Maybe you even do a staycation. I think that's an underrated option. This idea of playing tourist in your local area. So there's a way to have fun without busting the
budget. Nearly half of Americans said they plan to skip their
summer vacation, with 65% of them saying affordability

was the main issue. I kind of worry about both of those extremes. You know, you have the people that are paying 20 or 25 or 30% extra to go on vacation, which is not great. But then you also have a lot of people skipping the trip entirely, which may be regrettable. Later on, there is a ratio between the money being spent and the amount of time of your trip, and only you can decide if that experience, the memories of the five-day vacation, is valuable enough to commit to having to worry about paying it off for months in the future.

How Americans Are Paying For Vacation

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