Dear Penny: I Have Credit Card Debt, but I Seriously Need a Vacation

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Dear Penny,

I am a restaurant worker and writer on disability who has managed to save up nearly $1,000 earmarked for a vacation to Iceland. However, I have some credit card debt I've been struggling to pay off because my wages are inconsistent — to the point where the restaurant gig is the steady job.

I've thought about cashing in the fund to make a serious dent in the credit card debt, but I also would hate to start saving for vacation again when I'm so close to having it paid for. My last vacation was three years ago. 

I don't have a mortgage, an auto loan or student loans — just credit card debt, and it's less than $3,000. I also have a client who owes me nearly $1,000, but no clue when they'll pay. 

I'm on Medicare and Medicaid, so my health expenses are covered and that's the only real emergency I can see happening. What should I do?

-In Debt in Indianapolis

Dear In Debt,

In mathematical terms, the answer is super easy. You’re probably paying double-digit interest rates on your credit cards, so of course you should use your vacation fund to wipe out some of the balance.

But like so many life decisions, this one isn’t easily solved by an equation.

Sure, a vacation is a want, not a need. But a vacation can do wonders for your mental health and stress levels. Isn’t the daily grind so much more bearable when there’s a reprieve on the horizon? So yeah, I really want you to go see the Northern Lights.

But there are two things that worry me here.

For starters, how much vacation will $1,000 really buy you in Iceland? While you’ll often find great deals on airfare to Iceland, it’s known as a pretty pricy destination for meals and accommodations. Plus, keep in mind that vacations seem to always have a way of costing way more than we budgeted for. You have to expect those unexpected expenses, like taking a cab in bad weather, along with a little impulse spending because, hey, when’s the next time you’ll be in Iceland.

The other thing that concerns me is your statement that a health expense is “the only real emergency I can see happening.” Call me a pessimist, but I can think of infinite ways things can go wrong. Suppose, for example, you had to miss a week or two of your restaurant job because you had the flu or had to care for a family member. Would it put you deeper into the credit card hole?

Ordinarily, I’d lecture you about having an emergency fund, but since you’re on Medicaid and Medicare, I’m guessing you’re probably limited as to how much you can have in assets. That means it’s important to have credit available should you encounter an unexpected expense.

With all that in mind, I’m going to propose a compromise: You don’t have to start from scratch and use your Iceland fund for your credit card debt so long as you’re current on payments — but hold off on your travels for just a little bit longer.

Start hounding the client who owes you $1,000, and when they pay you, put every cent toward paying down your balance. From there, apply whatever excess money you’ve been able to set aside for vacation to your debt. 

This strategy will cost you a little more than you’d pay if you just used the money you’ve saved to attack what you owe because, yeah, you’ll still be paying interest. But knowing that you already have money set aside for your trip will be a huge motivator as you pay off the remainder.

I get that it’s frustrating to delay your plans when it’s been three years since your last vacation, but you’ll have less than $2,000 to go. You can do this.

Once you’ve paid off your debt, you have my approval to take this trip, with the caveat that you’ve budgeted carefully and saved enough that you won’t go back into debt as a result.

From there, go watch the whales, soak in the Blue Lagoon, do whatever the heck else they do in Iceland — and hey, don’t forget to send me a picture.

Robin Hartill is a senior editor at The Penny Hoarder and the voice behind Dear Penny. Send your questions about budgeting to [email protected].