How to pay for your vacation

That goes for other kinds of  borrowing as well. Don't let an excuse like "We deserve it" prompt you into a home equity loan. Financial expert Grant Cardone, star of the television series Turnaround King, offers a simple rule of thumb: "If you're too ashamed to ask Mom and Dad for travel money, don't ask a bank or a credit card company."

That said, Cardone notes that if you are able to pay off credit card charges before interest or fees kick in, it's an efficient way to keep track of your expenses and can often nab you bonus points for future discounts or upgrades with a hotel chain, rental car agency, or airline. McNeill suggests that if you use a card, ask for an introductory, no-interest period beyond the usual 30 days and make sure you understand exactly what your deadline is.

Does it make sense to set up a vacation savings account?

Yes, and the best way to make it work is to have money automatically deducted from your paycheck or checking account each month and tucked away in an account that you pretty much forget about until you need it. "Don't worry about how much interest it earns," says McNeill. "It won't be much, but the point is that it's more effective than stuffing bills in a cookie jar."

The first thing to do is determine how much you can afford to stash away each month, and don't be stingy. Try a little creative visualization—would the $4 you'd spend on a latte this afternoon and the $20 you blew on pizza last night be better spent, say, at next year's Mardi Gras? Those kinds of sacrifices can quickly add up, often netting you an extra $100 a week in travel savings.

BT reader Vickey Allen upped the out-of-sight-out-of-mind factor by setting up her vacation savings account at a bank 30 miles from her home and opting out of e-banking. "I just withdrew enough to pay for a Mediterranean cruise on the new Carnival Breeze!" she says.

How do I know what I can afford to pay for a vacation?

The old rule of thumb is that a once-a-year vacation should cost about one week's salary, but there's really no algorithm that's right for everyone. It's a personal decision that depends on your fixed expenses (housing, cars, student loans, insurance) and lifestyle choices.

"For some people, travel is important enough that they choose to live in a smaller house and keep a lot of their discretionary expenses down so they can see the world," says McNeill.

But Cardone warns that the most common mistake in vacation budgeting is underestimating costs. As you research your trip, remember to include not just airfare and hotels but also meals, cabs, shuttles, dry cleaning, souvenirs, tips, and a cushion for those great—or awful—OMG moments. (Cardone suggests setting aside an extra 25 percent for the unexpected.) Then figure out when you want to go and set up a monthly savings schedule.

For retirees on a fixed income, budgeting for bucket-list vacations can seem daunting. McNeill suggests that you put them on the calendar as part of your long-term financial plan and be as specific as possible. She helps her retiree clients to identify which years will require extra money for dream trips and which trips will be more affordable, so a walk on the Great Wall of China can become just one of many predictable expenses instead of a calamitous hiccup.

Is there such a thing as vacation layaway?

You may associate the word layaway with refrigerators and sofas, but prepaid travel plans are on the rise. Similar to socking money away in a vacation savings account, the big difference here is that you make regular payments to a tour operator or financial services company prior to your trip. Think of it as adding another layer of forced discipline.

The thought of sending money to strangers may give you the willies, so it's vital to choose a layaway operator that isn't going to fold or skip town. Happily, that venerable institution, Sears, just entered the vacation layaway business in June. Searsvacations.com lets you make reservations with major hotel chains, cruise lines, car rental agencies, and airlines, and offers 100 vacation packages for under $399 through International Cruise & Excursions. In many cases Sears can offer savings—such as 40 percent off family packages—and there's no fee for paying in installments. But you should make sure you understand when payments are due and whether there are late-payment fees. The major advantage to a layaway plan like this is that it essentially forces you to save by paying in advance—but if late payment fees add up, it's just as bad an idea as using a high-interest credit card.

Another reputable plan is elayaway.com. It will automatically deduct money from your bank account each month toward the purchase of a gift certificate from select hotel chains (Hyatt, Marriott, and Best Western), car rental agencies (Avis and Budget), airlines (American and Southwest), and websites (Travelocity and bedandbreakfast.com). You'll pay a processing fee of 1.9 percent of the gift certificate. (You basically pay a hefty premium to impose a savings plan on yourself.)

Gate 1 Travel lets you reserve a spot on one of its 400+ packages for as little as a $100 deposit per person as soon as the package is released (which is usually 12 to 18 months in advance), then pay off your trip in as many advance payments as you like. The catch is that your vacation must be completely paid for at least 45 days prior to your departure or you will forfeit your reservation and deposit.

What if I’m never going to have the cash for the trip I want?

You may be able to secure lodgings without going completely broke. For $10 a month, you can list your home on homeexchange.com for a swap. (Basically it gives you the opportunity to find someone in your dream destination who's hankering to visit your neck of the woods.) The more detailed your home description (including photos and house rules), the more likely you are to attract a swapper. Similar sites include digsville.com and homelink.org.
Another cash-free option is to trade your services for lodgings. This won't work on a major chain hotel—go for a B&B or small hotel where you can speak directly with the owner, and consider in advance whether you can offer the kinds of services they might be interested in bartering for. (If you're an accountant, landscaper, or IT pro, you're on solid ground; a poet, investment banker, or nuclear physicist, not so much.) It's also possible to "bank" bartering services with a barter exchange, such as ITEX, where small businesses can register for a fee and perform services for other members of the exchange, accumulating dollars that are yours to spend as you please.

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