If you've got an international holiday planned for the near future, be sure to take the time to familiarize yourself with your credit card's benefits and drawbacks when it comes to international travel. You'll want to make sure that your card will fulfill your needs, or you may wish to apply for a new card that will better fit your requirements, and possibly even cost you less in the long run.

TUTORIAL: Types Of Credit Cards

Card Security
Security and protection of personal information have become of huge importance in our modern world. To protect yourself while traveling, always make a phone call to your credit card issuer before you leave home. Let them know the dates that you'll be away and where you'll be. This will prevent your credit card from being cancelled or suspended if the card company detects suspicious spending on the account.

Most credit card issuers have made the move toward chip and PIN technology, which makes it easier to use credit cards abroad where this technology is typically standard and tends to provide a higher level of security as well. If your card still uses a magnetic stripe, you should always carry adequate identification. Merchants in some countries may need to see your passport in order to accept your card. Note the phone numbers for your credit card providers and store them in a separate location from your wallet. This way if your wallet gets lost or stolen, you can alert your credit card provider as soon as possible. (The first credit card company was introduced a decade before Mastercard and Visa. For more, see How Credit Cards Built A Plastic Empire.)

Card Acceptance
Not all countries are as accepting of credit cards as we are in North America. Be sure to do some research before you leave home so you'll know what the most accepted forms of payment are in the locations you'll be visiting. If credit cards are not widely accepted, it's probably in your best interest to use cash. Not all types of cards are as widely accepted as others, so you should stick to some of the more universal cards like Visa or MasterCard.

Exchange Rates
Generally credit cards offer a better exchange rate than the current rates at banks or currency exchange offices. For this reason, credit cards can be preferential for international travel. Be careful when merchants offer you dynamic currency conversion. This is when a merchant offers to change prices into your home currency. Though this may seem convenient, these merchants don't generally offer as good an exchange rate as your credit card provider will, and you may end up spending more money in the end. (Find out how a currency's relative value reflects a company's economic health and impacts your investment returns. For more, see 6 Factors That Influence Exchange Rates.)

Transaction Fees
Unfortunately many major credit cards come with transaction fees for purchases made in foreign currencies. Contact your card issuer to find out how much your transaction fees are. Many credit cards charge 2-3% on your purchases, so even if you are getting a favorable exchange rate, the transaction fee can negate any benefit you may receive via other card perks.

Cash Advances
Cash advances can be convenient, especially in countries where your debit card isn't widely accepted at ATMs. Keep in mind that you'll start paying interest on the money you withdraw as soon as you take it from the ATM, and you'll generally also have to pay a transaction fee. Depending upon your interest rate - especially on some of the premium credit cards that come with high interest rates - this interest can add up, even over a short amount of time. (For related reading, see Credit Card Features You Shouldn't Use.)

Travel Reward Cards
Many card providers offer some type of travel reward card. These cards offer travel reward points on every purchase made with the card, and a higher level of points awarded for every dollar spent on travel. RBC's Infinite Avion card gives an additional 25% reward points on every dollar spent on travel. These points can then be exchanged for free flights, hotel stays and other travel-themed rewards. Travel reward cards can be especially handy for individuals that travel frequently, though be cautious. Some travel reward cards come with higher annual fees and interest rates around 20%. The card issuers need to pay for all those "free" flights somehow.

Many credit cards also provide some type of insurance for travelers. The type and amount of insurance your card provides can vary and there may be some restrictions, so be sure to investigate thoroughly. Even basic credit cards will likely offer some kind of travel insurance to card holders. There's no need to pay for the same insurance twice, so you may be able to limit the amount of additional insurance coverage you'll need to purchase. For example, Capital One's Guaranteed MasterCard offers cardholders travel accident insurance, baggage delay insurance and a car rental collision/loss damage waiver. Cards that are designed specifically for travel offer more coverage to card holders, such as the ScotiaGold Passport Visa, which offers travel emergency medical coverage, trip cancellation insurance and hotel burglary insurance among other types of insurance and incentives.

Interest Rates
If you're unlikely to be able to pay for your holiday all in one payment, you should definitely consider the interest rate on your card. Many financial institutions and card issuers will offer low-interest credit cards with rates between 10 and 12%, and many of these cards come with little or no annual fees. TD Canada Trust offers several cards with interest rates based on its prime interest rate, which is certainly a lot lower than what the 19.99% that TD Canada Trust charges on its TD First Class Travel Visa Infinite Card. Be sure to shop around if you know that you're likely to carry a balance on your card. The amount you'll pay in interest could negate any benefit you'd get from a travel reward card.

Internet Banking
Use Internet banking to your benefit. Pay off credit card balances as soon as possible. If you have to take cash advances, transfer the cash from your bank account to your credit card as soon as you can. This way you can minimize the interest that you'll accrue, and you won't miss credit card payments if they come due while you're away. Always keep security in mind and be cautious of shared computers. Only log in to your bank account if you are sure that you can trust the computer you're using. (Learn how internet banking services stack up against those of their brick-and-mortar peers. For more, see The Pros And Cons Of Internet Banks.)

Prepaid Credit Cards
If you feel nervous about the security of using your credit card internationally or if you want to keep yourself to a strict budget to avoid overspending, you may wish to use a prepaid credit card. They can be used virtually the same as an ordinary credit card, though the amount that can be charged is limited to the balance you've loaded onto the card. You'll still get a favorable exchange rate that's better than a currency exchange or bank's rate on the date the transaction is posted, and you still have security options if the card is lost or stolen.

TUTORIAL: Choosing A Credit Card

The Bottom Line
Your credit card can be your best friend while traveling, but it can also be one of your worst enemies if you're using it incorrectly or haven't taken the time to learn about the features of your card. Using credit cards can actually reduce spending in comparison to exchanging large amounts of cash and then feeling the urge to spend it all while you're away. Try to anticipate your needs so that you will know what you're getting into.

The most appealing card with all those great travel rewards may end up costing you more in interest if you can't pay off your trip all at once or if you're going to be taking a lot of cash advances, though perhaps you'll use the card enough that the larger annual fee will be small in comparison to the value of the rewards you'll receive in the long run. Whatever works best for you, the only way to find out for sure is to do the research. (For related reading, see Forget Your Bank Account- Use Your Credit Card.)

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