Why You Should Use a Credit Card Abroad
There is simply no better way to spend when you are abroad than with a credit card. Here are five reasons why:
Credit cards are the cheapest way to spend money abroad. If you choose the right one you’ll pay no transaction fees and get the best possible exchange rate at the moment you spend.
In contrast, if you take cash you’ll pay over the odds to exchange it, and debit cards typically have a 3% transaction fee on foreign purchases.
If your cash is lost or stolen you have little chance of recouping it, unless it is covered by your travel insurance, but with a credit card you can cancel it and, as long as you do so quickly and were suitably careful with your pin number, you won’t be liable for any money spent on it.
Purchases made anywhere in the world on a credit card are covered by Section 75 of the Consumer Credit Act 1979. This means that if something goes wrong your credit card provider is equally liable with the retailer. This is especially useful when you’ve bought things on holiday as it is a lot easier to speak to Barclaycard than track down a shopkeeper in Bangkok.
A credit card offers you access to extra funds if there is an emergency.
In some circumstances retailers may insist on payment with a credit card, for example hotels and car hire firms, as they can pre-authorise an amount on a credit card to cover additional costs such as mini-bars or damage.
What is an Overseas Spending Credit Card?
All credit cards offer the last four advantages mentioned above, but not all are cheap. Many will charge you extra fees if you use your card abroad, and these can add significant sums to your holiday spending.
In some cases you could be charged several pounds EVERY time you use your card.
To get the cheapest possible credit card you’ll need to get a credit card that is specifically designed and marketed as being for use overseas.
These cards don’t charge transaction fees on purchases or foreign exchange fees, making them typically around 6% cheaper to use than other credit or debit cards.
How to Choose the Right Credit Card
Getting a fee-free card could save you £100s when you are abroad. There are three main fees to watch out for:
- Foreign exchange fee — Covers the cost of converting sterling into a foreign currency and is typically 3% of the transaction.
- Cash withdrawal fee — Around 2% of the withdrawal amount, or a minimum of £2.
- Transaction / purchase fees — These are normally associated with debit cards and can be a flat rate of £1.75 per transaction or as high as 3%.
The most important thing to watch out for is the foreign exchange fee – often called the loading fee – some cards will offer a zero fee in Europe only, charging 3% elsewhere. But the best cards don’t charge a foreign exchange fee worldwide.
Some overseas spending cards also offer an interest-free period on purchases, meaning you can spread the cost of your holiday spending. But if your card doesn’t make sure you pay the balance off in full when you receive your bill as these cards tend to have high interest rates.
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Tips and Tricks for Successful Holiday Spending
Keep your bank informed
Banks have an annoying habit of stopping your credit card when you’re abroad, in case it has been stolen and is being used by a fraudster. Prevent this by calling your credit card provider before you leave, telling them exactly where you are going and when.
Make sure your card provider also has your correct mobile telephone number. If it sees unusual transactions it will call you to check if they’re genuine. Also, take your card company’s 24-hour emergency telephone number abroad with you so you can contact them immediately if your card is lost or stolen. You can find the emergency numbers for most credit cards here.
Pay in local currencySome shops, restaurants, and card machines will ask if you want to pay in sterling or the local currency. Always opt to pay in the local currency, otherwise you won’t be given a competitive exchange rate.
Be aware of pre-authorisationMost hotels and care hire companies ask for your credit card details, but they rarely explain why. They are carrying out a ‘pre-authorisation’ on your account. This means they earmark an amount – say, £500 – until you return the car or check out of the hotel. This is to ensure that there is enough credit available on your card to pay the bill in case you run off with the car or trash the hotel room. The reserved funds never actually leave your account, but they are deducted from your available credit limit. So during this time, you have less to spend on your card.
Protect your cardDon’t let your card out of your sight, especially when using it in restaurants and bars. If a waiter says he must use a card machine at the back of the restaurant make sure you accompany him. Don’t give your PIN to anyone – even if they claim to be from the police, or your card company. And always shield your PIN when typing it into a keypad in a shop or at a cash machine.
When you get home, check your card statements carefully for unfamiliar transactions and report any to your card provider as soon as possible.
When Not to Use a Credit Card
Buying foreign currency with a credit card counts as a cash withdrawal and is VERY expensive.
A credit card can save you a fortune when you are abroad as long as you use it properly. Just make sure you don’t withdraw cash or buy foreign currency with it. Both these transactions count as a cash withdrawal so most providers will charge interest on the cash from the minute you receive it, regardless of whether you pay your balance in full within the month.
Also, most credit cards charge a fee for cash withdrawals whether you are in the UK or abroad and this also applies if you use the card to buy currency.
So, stick to a debit card when you need to withdraw cash or buy currency.
Other Ways of Spending
If you are going to buy currency before you leave don’t buy it at the airport, the bureaus know you have no choice but to buy from them so charge awful exchange rates. Buy it online or shop around on the high street for the best deal.
You can find the cheapest travel money for sale near you here.
Check the fees associated with using your debit card abroad. Many charge for transactions, and also a small fee for cash withdrawals so use your credit card for purchases, but use your debit card for withdrawals, just keep withdrawals to a minimum to keep costs down.
Load a card with money before you leave and use the card to withdraw cash or pay in shops and restaurants when you’re abroad. These cards are great for budgeting and can also work out cheaper than using a debit card, just make sure you pick a card with no fees.
What to do now
- Check the overseas usage rates and fees on your credit card.
- Compare with a specialist overseas card.
- Apply for an overseas credit card if it is cheaper.