Holiday money – what is the best way to pay for your holiday?

A holiday can be a big investment; if your holidays are important to you then they should be included in your day-to-day budgeting so that they don't become a big, once a year expense. How can you enjoy the benefits of a relaxing break if you are worrying about how much it all costs and how you are going to pay for it?

Plan in advance and save for the trip
A good idea is to open a new savings account and set it up solely as a holiday fund – not to be touched for other things, except in dire circumstances. Julia and Andrew, her partner, have set up a joint account they call the 'fun fund', both paying in an equal amount by direct debit each month. This makes the saving easy as it happens automatically, and it means they don't have any pangs of conscience when they spend the money on just having fun.

Make sure you have the right sort of account, it's no good having it locked away in a limited access high interest account when you suddenly want to take a weekend city break! You need easy access, but with a reasonable rate of interest, so it's earning a little for a few extras on the holiday too. But before you just set up a new savings account with your current bank, take a look at savings rates available with other banks and building societies; rates can vary considerably.

Borrowing the money
We can't all be as organised as Julia and Andrew and we sometimes find ourselves in need of a holiday when we haven't the funds available to pay for it, or when our funds are tied up in other ways – this is when a loan can come in handy.

If it's a big trip, perhaps a honeymoon or that once in a lifetime cruise, a personal loan is probably the best way to go. With a personal loan you can spread your payments over an extended period. Check the details of the loan before you commit yourself, we suggest you go for one which has the flexibility of early repayment so that you can pay it off early if you find you have the funds at the time. Both 'accident, sickness and redundancy cover' and 'life assurance' are good things to look for too and some plans offer life cover free of charge.

If it's a smaller amount, or a short term loan you need, you might consider paying for the trip by credit card – but take out a new card before you book and look out for a good introductory rate, this will often beat anything on offer as a personal loan.

But beware, special deals are often limited in duration and rates can sometimes rocket after that. Check the actual terms thoroughly before you sign up, and be sure you can pay off the holiday cost within the offer period if you don't want to pay high interest rates.

Making the booking – cash, cheque or credit card?
So you've chosen the holiday, what is the best way to make the payment? We recommend payment by credit card as it comes with several advantages:

•	It gives you greater flexibility; buy using the interest free period you have longer to find the money and, provided you pay the bill off by its due date, you needn't pay extra for this.
•	If you aren't worried about paying interest (particularly if you have set up a new favorable credit card account, as discussed above) then you can spread the cost at your convenience.
•	You can pay on-line. Increasingly you can pay holiday deposits and even the full holiday cost on-line, it's a quick and convenient way to pay.
•	By using your credit card to pay for the holiday (provided it's more than £100) you get the benefit of cover by the credit card company. They become equally liable for providing a refund if the holiday is not supplied, turns out to be unsatisfactory or if the holiday company goes bust. The down side of this is the surcharge that is often applied by the travel agent or tour company – a typical charge of around 1% or £15 – think of it as an insurance premium. Tip: ensure you pay for the holiday on a credit card belonging to one of the participants of the holiday; otherwise you could miss out in the event of a claim.
•	Credit cards often come with free travel insurance if you pay for your trip using the card – sounds tempting, but check the terms carefully. Often the insurance is limited to accidental death or injury and may also come with a time limit. Terms and conditions will vary from card to card, so you are advised to check the terms on your own card thoroughly. You are best buying dedicated travel insurance for full cover and to look on the credit card travel insurance as an extra bonus.
•	Some credit cards offer 'cash back', reward points or air miles. If you are planning to pay for a high value item like a holiday these rewards can add up very nicely. Pick one that offers air miles and get one holiday to start you saving for the next, or use your 'cash back' for some extra treats on the trip.

Paying by debit card is another option, but be aware that this is more like paying in cash or by cheque, and does not give you the same protection as a credit card payment.

Once you have paid
It's important to have a record of your payment in case of dispute, so make sure you get a clear receipt, particularly important if you are paying on-line.

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