A credit card is also a safer alternative to carrying large amounts of cash while on holiday. However, the last thing you want is to pay mysterious fees whenever you take cash out or pay for a meal.
One fee you should look out for when using a credit card, especially abroad, is a non-sterling cash transaction fee. You might just need a little cash top-up to pay for a few drinks in a bar that doesn’t take cards. However, if you use the ATM you could incur a fee.
There’s also a non-sterling purchase fee. Let’s say you move down the street to a nicer bar that takes cards – there could still be a fee for spending in a foreign currency instead of sterling.
A retailer might give you the option of paying in sterling instead of the local currency...you’ll probably be charged a higher rate for the conversion.
To complicate things further, a retailer might give you the option of paying in sterling on your card instead of the local currency. This is called dynamic currency conversion. In one way it’s convenient because you can see on your bill exactly how much you’re about to spend, but bear in mind you’ll probably be charged a higher rate for the conversion.
It’s better to use a currency conversion app to understand how much you’re paying and avoid the charge by checking the bill before tapping to pay or entering your PIN. Then pay in the local currency if your card has no fees for non-sterling transactions.
If you decide to use the ATM anyway and accept the charges mentioned above, don’t forget that as soon as you make a cash withdrawal, you could be charged interest on it until you pay off your balance.
To put these fees into perspective, using the wrong sort of credit card abroad could go like this...
You take out £100 at a cash machine. You could be charged £3 extra for foreign usage, a £3 cash withdrawal fee, and £2 interest before you pay off the bill. That’s £8 just for taking out a bit of cash.
Multiply this a few times across a week-long trip and it’s easy to see how foreign transaction costs add up. If you use the right card, however, that money could pay for an extra meal or family activity.
As with all credit cards, it pays to be aware of how much borrowing using a travel credit card will cost you in total. If your repayments are too small, the interest will quickly wipe out any savings you made while abroad. One way to make sure you don’t miss a payment while you’re away is to set-up Direct Debits or standing orders to automatically pay bills. When it’s affordable, this can be a good idea whether you’re at home or on holiday.
That means you can claim money back from your credit provider if your travel company or supplier goes under. This could be especially useful if you plan to make big purchases on your credit card, such as flights or hotel rooms, as you might not have the same protection if you pay by debit or cash.
