If there is something that the personal finance blogosphere loves, it’s vacations/travel. If there is something that the personal finance blogsophere hates, it’s debt. When you combine the two, what do you get?
My dilemma. Should I go on vacation while I am in debt. Or put another way, should I use money that I have saved for vacation when it’s money I can use to minimize my debt?
Here’s the situation
Long-time readers will remember the many (seriously, many) times I have gushed about the prospect of going to the Galapagos Islands near Ecuador. CB and I started a joint savings account back in April 2010 to save for this trip. We celebrated each small milestone, high-fived each other when our $250 became $500 became $700 and so on. When the Galapagos Fund crossed over the $5,000 mark in April 2011, I was so excited I almost cried. Now, our darling baby fund is a robust $11,000. It’s ENOUGH. Enough to fund a 7-night cruise to the Galapagos plus a few days in Quito, buy an entry-level dSLR or a really great point-and-shoot, pay for our park fees and international flights. We might even have a thousand or two left over. That’s what the money is FOR.
On the other hand, it’s almost $11,000 in cold hard cash that we can use to pay for less-exciting-but-far-more-necessary things like, oh, you know, graduate school tuition. It doesn’t quite make sense to keep the money in a 0.8%-interest earning account when graduate student loans will start at 6.8% (or more). We could go on a trip in 2013, but we will be busy with school and internships and one of my good friends might be getting married and we’ll have to travel for that, and it’s probably not the best time, logistically speaking.
Paying off Debt vs. Going on Vacation
“Well, at least I’m not taking on debt to go on a vacation,” I thought. But am I really avoiding debt for this trip? Or am I falling prey to a case of mental accounting? Let’s say a year of school for CB costs $12,000 out of pocket, and he will be in school for at least 2.5 years or a total of $30,000. Consider these two scenarios:
Scenario 1: CB and I spend the $11,000 in cash on Galapagos, and we have to take on the $30,000 tuition in student loans. Total debt = $30,000
Scenario 2: CB and I use the $11,000 to pay for his tuition, therefore we need to take out $19,000 in student loans. Then, we go to Galapagos and take out consumer debt of $11,000 to cover the trip. Total debt = $30,000
Even though we “used cash we saved for a vacation” in Scenario 1 and “took on debt for a vacation” in Scenario 2, in both cases, our resulting total debt levels are the SAME. It makes no difference (disregarding interest rates for a second here) whether we spend the $11,000 on Galapagos or school. It matters that that $11,000 is no longer available for tuition if we spend it on Galapagos. Yet another example of the fungibility of money. SIGH. So if I would never ever advocate taking on debt for a vacation, and Scenario 1 would land us in the same debt situation, should we really be going to the Galapagos? Can we really afford to go to the Galapagos?
The responsible, adult, thing to do would be to take that money, defer our dreams of seeing the turtles for a few years, and use it to pay for tuition/living expenses. But I can’t deny the wave of disappointment that comes over me when I think about that option.
I want to see the turtles. I want to do this trip. I want to cross Galapagos off my bucket list.
What would you do?
photo credit: http://www.flickr.com/photos/ndecam/