In days gone by, taking a holiday overseas meant changing dollars for another currency or ordering a stack of travelers’ checks to cash in while on vacation.
However, consumers are increasingly opting to use credit cards while abroad to save the hassle of having to preorder currency, as well as to avoid the greater risks involved with loss or theft.
For those who opt to use a credit card while on vacation, it is advisable to take a couple of precautionary steps before leaving the US.
First, contact your credit card provider and let them know you will be going to a different country and plan on using your card. There have been instances of accounts being frozen after they were flagged up as possibly fraudulent due to transactions outside the US.
Second, ensure that you have your lender’s contact details, including the hotline for lost or stolen cards, and that you have written your card number and expiration date down. While this isn’t essential, it may help save time when you are in the midst of a crisis.
Credit cards are undoubtedly a very convenient way to pay for items when traveling overseas, but there are some downsides that need to be taken into consideration before using your plastic.
At home in the US, cardholders may be used to paying for purchases on plastic without any additional charges unless the retailer specifies otherwise, but while overseas, there are a number of different charges that can make any transaction more expensive than its cash equivalent.
Interest rates are often hiked up for any overseas credit card use and some firms can charge as much as 2% more in interest, just for the privilege of using the card abroad. This may not seem that much, but this is in addition to the other charges that firms may levy.
Two of the biggest names in credit cards, Visa and MasterCard, both add an additional handling charge onto any international purchases. This is usually in the region of 1% and is on top of the interest rate applicable to the account.
Withdrawing cash from a credit card is seldom a good idea and a policy best reserved for absolute emergencies, as it tends to attract a higher rate of interest or charges from the credit card firm.
However, using your flexible friend to get money from a foreign ATM is even more expensive than back home.
Cardholders can be hit with two sets of ATM fees - one lot from the ATM provider, which is usually in the region of $1 to $3 per withdrawal - and the other from the credit card firm who tend to charge around $2 to $7 for a cash advance from an overseas ATM.
It is not unusual to find the total charges from a foreign ATM amounting to between $5-10 per withdrawal - a hefty sum that soon adds up.
If all of the above weren’t weighty enough, cardholders are often penalized with poor exchange rates.
When an item in a foreign currency is purchased with a credit card, the currency must be converted back into dollars. The exchange rates applied to credit card transactions are notoriously low and usually among the worst conversion rates on the market.
Although credit cards are a convenient choice when going abroad and worth considering for not only their ease of use, but security, it is essential that the additional charges and interest are added onto the holiday budget to prevent a nasty shock when the bill arrives as the suntan is fading.