When you go on vacation abroad, it’s important to take the right kind of plastic with you.
Using a credit card when you’re abroad is a convenient way to pay for shopping and day trips, but if you choose the wrong one you’ll be stung by an array of fees and charges.
Fortunately, there are a number of credit cards that you can use abroad without having to pay the price.
What is a travel credit card?
A travel credit card is designed to help save you money when spending abroad because it won’t charge you a fee every time you use it.
Travel credit cards should not be confused with foreign currency prepaid cards, which are charged in foreign currency prior to your trip and used as a cash substitute.
How do travel credit cards work?
Most debit and credit cards charge an overseas transaction fee to convert what you spend on the card from local currency to pounds sterling. This is usually around 2.99% of the amount spent, so if you buy something that costs £ 100 you will pay a fee of £ 2.99.
Plus, if you use your credit card to withdraw money, you’ll pay an additional fee of around 2.99%. This means that the £ 100 withdrawal could cost you £ 5.98 in fees, including both the foreign transaction fee and the cash withdrawal fee.
With cash withdrawals, you will also be charged interest from the day of the transaction, even if you pay off your balance in full that month, making it a very expensive way to get your money back.
However, by using a travel credit card, you can often avoid paying both overseas transaction fees and cash withdrawal fees when using your card overseas. Note, however, that interest is always charged when withdrawing cash (from the time of withdrawal), even if you pay your balance in full.
Overall, this means that paying for purchases with a travel credit card can save you a fair amount of money while abroad.
Are there other benefits of using a travel credit card?
There are several other benefits of using a travel credit card, including:
- Purchase protection: Provided they cost more than £ 100 and no more than £ 30,000, purchases made on a credit card are protected by Article 75 of the Consumer Credit Law. This means that if the purchased item is faulty or the company you purchased it from goes bankrupt, your card provider is jointly responsible with the retailer and you should be able to get your money back.
- Competitive exchange rates: Travel credit cards can offer competitive exchange rates when spending abroad.
- Cashback and rewards: Some travel credit cards also offer cash back rewards and other incentives such as family travel insurance.
What should I watch out for?
If you are considering applying for a travel credit card, there are also a number of things to consider:
- Interest rate: The majority of travel credit cards don’t offer 0% introductory offers, which means you’ll usually have to pay interest if you can’t clear your balance in full each month. Keep in mind that you will also be charged interest if you withdraw money from your credit card, even if you pay off your entire balance that month.
- Fresh: While travel credit cards may be cheaper than standard credit cards when spending abroad, you still need to be careful with annual or monthly fees and keep in mind that you will also be charged. if you are late or miss a monthly payment.
- Your credit score counts: The most competitive credit cards are usually only offered to those with excellent credit scores. If your credit score is not up to par, your application may be denied.
- Dynamic currency conversion: When you pay for a purchase at a store, the retailer can convert your payment to pounds sterling rather than keeping it in the local currency. Unfortunately, the applied exchange rates usually offer poor value when this happens, so you may be paying more than you expect. If you can, always pay in the local currency.
Are there any alternatives?
If you are unsure whether a travel credit card is the right choice for you, there are other options to consider.
Choosing to pay by debit card, for example, means you won’t be borrowing on credit, so you don’t have to worry about paying the interest. However, it pays to look for a debit card again that won’t charge a foreign transaction fee or cash withdrawal fee.
You can also consider a prepaid credit card that allows you to load your card with currencies in advance. If you spend what’s on the card, you just top up again. Many of these cards are cheaper than standard credit cards and offer competitive exchange rates.
You may also want to take foreign currency with you for times when you can’t spend on plastic. If so, it is better to order it online in advance to get the best rates.
For more information, see our article on best ways to spend abroad.