Using your credit card abroad is arguably one of the safest ways to shop while you're away. However, you need to follow these 5 rules or it could prove to be a more expensive trip than you bargained for!
Shopping abroad using your credit card doesn’t need to be costly, simply follow theses 5 rules to make your holiday money go further and avoid hefty overseas charges.
1. Find out what will you be charged
While it can be tricky working out exchange rates on the spot, knowing exactly what your credit card company will charge for transactions overseas is the best way to keep your overseas spending in check and find the real cost of using your credit card.
Establish if your existing credit card applies any transaction fees, currency conversion fees and the interest rates charged on overseas transactions.
Checking all these details before you travel will mean you’re well informed of the costs involved of using your credit card and, if you have several cards, will allow you to choose the cheapest card for your spending overseas.
If you have time, get a cheap overseas card
If you have several weeks before you are due to travel and find that your existing credit card does impose charges, you should consider applying for an alternative.
As with balance transfer and cash back credit cards, there are credit cards that are specifically designed for overseas use and give you access to fee free spending abroad as a result.
Applying for one of these specialist cards before you travel could save you a significant amount in charges and transaction fees, especially if you are planning to use the card on a regular basis while you’re away.
However, it's often the case that these cards will be less competitive for spending within the UK, and often charge high interest rates.
As such, if you plan on applying for one you might want to keep it for use on your holidays and use a different credit card while in the UK.
Similarly, you should try to pay off your holiday spending as soon as you get your statement so that you don't incur interest charges that unnessarily add to the cost of your holiday.
You can find a list of the top use abroad credit cards in our credit cards to use abroad comparison - make sure you check the international charges as well as the standard purchase APR when you're comparing your options.
2. Pay in the local currency
If you're given the choice, always opt to pay in the local currency rather than allowing the shop or trader to convert your transaction into pounds sterling.
This process is call dynamic currency conversion and can work out very expensive.
This is because the exchange rate used by overseas retailers to convert the transaction will incorporate a percentage fee that they keep to boost their profits – essentially they charge you for the privilege of seeing your transaction in pounds rather than in say Euros or Dollars.
Plus, if you pay in the local currency, the exchange rate used by your credit card will be the same rate that banks use for lending between each other, and in almost all cases will be much more generous.
3. Don’t withdraw cash with your card
Using your credit card to withdraw cash while you’re away will be an incredibly expensive way to access your cash.
This is because cash advances from your credit card will not only incur a cash advance charge, usually costing you at least £3 per withdrawal, but will also start to accrue interest (often at a significantly higher rate than other purchases) right away.
If you do need to withdraw cash using your card then avoid making lots of small withdrawals as each will be charged separately, instead withdraw one large amount to avoid incurring a several fees.
This is, however, best avoided if at all possible.
Don’t buy currency in the UK using a debit or credit card
If you are planning to purchase your foreign currency before you travel, then you still need to be careful how you pay.
This is because some card companies treat foreign currency purchases as cash advances, while debit card providers often treat them as international transactions and will impose the same fees as if you were out of the country withdrawing cash.
4. Tell your bank before your travel
Most banks will view transactions unexpectedly made on the other side of the world as being suspicious and block them as an anti-fraud measure.
However, in most cases you can avoid having your transactions declined by your credit card provider by informing them of your travel plans before you board the plane.
Most credit cards have a customer service number printed on the back that you can call to inform your credit card company of your travel plans, or to ask them to unblock your card if you are already on holiday.
5. A cheap credit card is better than a debit card
Although spending using your debit card in the UK is likely to be cheaper than using your credit card, when you take your debit card overseas it may very well become considerable more expensive.
This is because many debit cards apply transaction charges (typically somewhere between £1 & £1.50) to every purchase you make overseas.
These charges will be on top of load fees (between 2-2.5%) added to the exchange rates meaning that spending using your debit card is an expensive choice and less cost effective than a good overseas credit card that doesn't charge for transactions abroad.
The only exception to this is if you are going to need to withdraw cash while you're away, or if you fail to repay your credit card in full on your return to the UK and start accruing high interest charges.
If you need help deciding the best way to spend your money while you’re out of the country, read our guide: What's the Best Way to Spend Overseas?
