Cruising to Bankruptcy?
By Todd De Haven
August 13, 2008

In these tough economic times, using your credit to pay for a cruise could be a big mistake. Sage financial advice from our CruiseMates readers.

One of Cruisemates' message board leaders recently initiated a thread entitled, "Cruising to Bankruptcy." The thread invited comments from members about how they paid for their cruises and whether they thought some cruisers were getting over their heads by adopting a "cruise now -- pay later" attitude.

The overwhelming majority of respondents said they pay for their cruises completely or almost fully prior to embarkation. While many other cruisers do likewise, there is still a significant number who don't. Arguably, some of the people in this latter group could have compulsive spending habits.

One of the riskier ways to pay for a cruise these days comes from lower home values. During the real estate boom, many cruisers saw their rising home valuations as money in the bank. So they took out home equity lines of credit (HELOC), in which the bank essentially puts your equity into a cash account for you to spend, charging you little more than the interest on the debt for a few years.

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The danger in using home equity to pay for a cruise is that home valuations are dropping, and as a result, many banks are changing the terms of their home equity loans -- drastically and without notice -- reducing the amount of credit they will give you. If you spend $10,000 on a lavish cruise now and pay for it out of your HELOC, you might think you have plenty of headroom in your account, but the bank could lower your limit at any time. If it does, and if you have an emergency, you might not have a backup emergency fund.

Getting a refund on a cruise after final payment is made is not easy. Cruise lines are unlikely to give anyone a refund on any cruise yet to sail for any reason, unless the cruiser buys "cancel for any reason" insurance. Those policies, which cost a few hundred dollars per person if purchased from the cruise line, in most cases will only refund about 75 percent of the cruise fare. Your airfare and other expenses are not included. You can get similar cancellation policies from third parties that will cover all your pre-paid travel expenses, but they cost more.

Cruise Addiction Horror Stories

On our message boards, one member noted that he had once been in a casino with a couple who were down to their last couple of bucks; both had that "deer in the headlights" look, praying their last bet would result in a massive win. Of course, it didn't. There are undoubtedly individuals so addicted to cruise vacations that they, too, get in over their financial heads. Betting your home or your nest egg by using your home equity to pay for an expensive cruise can be a similar gamble, depending on how much home equity you have.

Another member commented: "One woman I chatted with on the Triumph was on the 10-year plan for her university education and gladly charged and spent money she didn't have on a cruise. I would never do that. I can dream and look at pictures/videos as a reminder." Another remarked that while they loved cruising, they preferred to have a roof over their head year-round.