The best ways to pay for your holiday

by Rachel Wait on 29 June 2010  |  17 comments
Tweet

If you're off on your summer holiday in the near future, follow these top tips to find out how to pay for it all!

If you’re hoping to jet off on holiday in the coming weeks or months, you might be pondering how you’re going to pay for it. Let’s face it, keeping those holiday costs down can be tough. So if you’re a little worried about how you’ll be able to fork out for everything, here are some top tips!

Pay by credit card

If you’re anything like me, your first reaction to paying for your holiday will be ‘stick it on a credit card’. And while I wouldn’t want to encourage you to get into debt, using a credit card can actually be one of the best ways to pay for a holiday.

For a start, if you pay by credit card, you’ll be protected under Section 75 of the Consumer Credit Act. This means that if you spend between £100 and £30,000 on a single purchase, and something goes wrong with that purchase, you’ll be able to apply for a refund.

Secondly, using a credit card can also be an interest-free way of paying for your holiday, or it can help you to build up rewards such as airmiles.

Interest-free purchases

If you know there’s absolutely no way you’ll be able to pay off your credit card bill in full once you've booked your holiday, you should make sure you use a 0% on new purchases credit card. That’s because you won’t have to pay any interest on your holiday payment for up to a year! In other words, you’ll have up to 12 months to pay off your debt without worrying about the interest stacking up.

The Tesco Bank Clubcard Credit Card MasterCard and the Sainsbury’s Finance MasterCard for Nectar Card Holders both offer 12 months interest-free on purchases. What’s more, with the Tesco card, you will also earn Clubcard points every time you spend on the card.

Just be warned that you will need a Nectar card to qualify for the Sainsbury’s card, but you can easily apply for one here.

You should also make sure you pay off the balance in full by the time that 12 months comes to an end. Otherwise you’ll be hit with an interest rate of 16.9% for the Tesco card and 15.9% for the Sainsbury’s card.

If you can’t pay off the balance in full by this time, you should transfer your debt to a 0% balance transfer card – but you will need to pay a transfer fee of around 3% to do this.

Low rate for life

If you know immediately that the amount of money you’re spending on your credit card is likely to take more than a year to pay off, you might prefer to consider a low rate credit card. These nifty pieces of plastic offer a low rate of interest for the life of the debt.

So, for example, if you take out the Barclaycard Platinum Simplicity Visa, any purchases you make on the card will only be charged an interest rate of 6.8% until you pay off the debt in full! Similarly, the Halifax Easy Rate MasterCard offers an interest rate of 6.9% on all purchases – again, until you’ve paid off the debt in full.

That said, the interest rates on both of these cards are variable, so they could change.

Brilliant rewards

If, on the other hand, you know you WILL be able to pay for your holiday in one go, it’s still a good idea to pay for it on your credit card. Not just because you’ll have that lovely Section 75 protection I mentioned earlier, but because your credit card can reward you for your spending!

The Lloyds TSB Airmiles Duo credit cards, for example, are part of the Airmiles scheme. If you sign up for these cards, you’ll receive two cards - one American Express, and one MasterCard.

With the American Express card, you’ll receive one airmile for every £10 you spend, and with the MasterCard, you’ll receive one airmile for every £50 you spend. And if you spend on your cards abroad, you’ll be able to collect double the airmiles!

What’s really great about the Lloyds TSB Airmiles Duo credit cards is that when you go to book your free flight with your airmiles, all flights include airline taxes, fees and surcharges! What’s more, your airmiles can also be used for fun activities and days out. You can find out what you can spend your airmiles on here.

Alternatively, the American Express British Airways Card allows you to earn one British Airways mile for every £1 you spend. You'll also receive 1,000 bonus BA miles if you spend £500 in the first three months.

With the Premium Plus card, the benefits are even better than with the standard card. That’s because you'll earn 1.5 BA miles for every £1 you spend. If you spend £3,000 on your card in the first three months, you’ll also receive 18,000 bonus BA miles. You'll also receive double BA miles on British Airways flights and BA holidays. Just bear in mind that there’s a £150 annual fee with the Premium Plus card. (No fee applies to the standard card.)

It’s also worth noting that flights booked with BA miles will not include fees and taxes so you will have to pay for these separately.

You can find out more about these reward credit cards and others in Bag a free holiday with your credit card.

Save, save and save some more

Finally, if you would prefer not to pay by credit card, you could simply work hard and build up your savings. Right now, the top paying easy access savings accounts are the Egg Savings Account and the AA Internet Extra Savings Account - both of which pay 2.80% - as well as the Halifax Web Saver Extra which also offers an interest rate of 2.80% if you're a Halifax current account customer.

However, there is an even better way to give your savings a boost, and that’s by using a current account for your savings. In fact, you could be earning an interest rate as high as 5%! Take a look at the table below:

And if a high interest rate isn’t enough, if you decide to open the Santander Preferred In-Credit Bank Account or the Alliance & Leicester Preferred In-Credit Bank Account, you’ll also be given £100!

Just bear in mind you will need to pay £1,000 a month into all three of the above accounts and this may well be significantly more than you actually intend to save each month.

However, on the plus side, all three of these accounts allow you to withdraw as much money as you have in credit. So you could make your minimum monthly payment one day, and withdraw it all (or some of it) the next day.

So now you’ve worked out how to pay for your holiday, all there’s left to do is enjoy it!

More: The six best credit cards | How to get a free flight upgrade

Compare credit cards with lovemoney.com

Compare savings accounts with lovemoney.com