8 Considerations For Using Your Credit Card Abroad
Are you planning to travel abroad this summer? Which credit card you take with you on your next international trip could have a big impact on the final cost of your journey and on how smoothly your trip goes. Here are the terms and features you should look for when choosing the right credit card for travel outside the United States.

TUTORIAL: Credit Cards: Types of Credit Cards

1. Foreign Transaction Fees
Many credit cards charge a foreign transaction fee of 3% per purchase. If you pay for all of your hotel stays and most of your meals and other expenses on a credit card while you're abroad, those repeated 3% fees will add up by the time you get home.

Is it worth it to apply for a new credit card that has no foreign transaction fee? It depends. Estimate how much money you expect to put on your credit card while you're abroad. In some countries, credit cards are widely accepted, while in others, you'll have to pay cash for just about everything. If you're expecting to spend around $1,000 on your cards, a 3% fee will cost you an extra $30, which may not make it worth your trouble to open a new account. (Paying these rates can impact your disposable income and your investment returns. For more, see Understanding Credit Card Interest.)

However, when you consider that two of the credit cards that offer no foreign transaction fees also currently offer great sign-up bonuses, opening a new account becomes much more appealing. The rewards could help you pay for your next trip.

The Chase Sapphire Preferred credit card offers 50,000 bonus points when you spend $3,000 within three months of opening the card. Points redeemed for travel give you a 25% bonus, for a total of 62,500 bonus points that can be redeemed for $625 worth of airfare or hotel accommodations. The card also has no annual fee for the first year (it's $95 thereafter).

The Capital One Venture Rewards card also has no foreign transaction fees and offers 25,000 bonus miles to new accountholders after they spend $1,000 within three months of opening the account. The miles can be redeemed for any travel expense. The annual fee is waived the first year and is $59 thereafter. (For related reading, see 4 Tips For Using Credit Cards Overseas.)

2. Travel Rewards
Choosing a credit card that offers above-average rewards on purchases such as hotels and airfare won't necessarily reduce the cost of your trip in the short run, but it will pay off later when you redeem your rewards. Just make sure that the foreign transaction fee won't effectively cancel out or even exceed the rewards benefits you can earn.

The popular American Express Starwood Preferred Guest card has a signup bonus equivalent to a free night's hotel stay. It also gives you a third night free every time you book two consecutive nights at a participating Sheraton hotel or resort. All purchases accrue points that can be redeemed for future travel; stays at Starwood hotels, which are located all over the world, earn you extra points. The card's foreign transaction fee is 2.7%; the $65 annual fee is waived the first year. (For related reading, see Drawbacks Of Travel Reward Programs.)

3. Cash Advances
When you use your credit card like an ATM card, you'll have to pay both a cash advance fee and interest on the cash advance. Let's say you take a $1,000 cash advance. Right off the bat you'll pay a transaction fee of perhaps $10 or 5%, whichever is greater. In this case, 5% would be greater and you'd pay a $50 fee. On top of that, you'll have to pay the cash advance APR, which may be higher than the card's APR for purchases, until you pay back the advance. If the APR is 20%, you'll pay $200 a year on the $1,000 advance.

Of course, if you pay back the advance quickly, your interest costs will be lower, but you'll still have to pay the cash advance fee. If you incur your card's penalty APR by, say, making a late payment, you might be paying 30% interest on your entire card balance--plus the late payment fee. Any fee that you have to pay to use your check card at a foreign ATM will probably be significantly lower than your credit card's cash advance charges.

4. Trip Insurance
Many credit cards will give you money if your baggage is delayed, lost, stolen or damaged. They will also reimburse you for any prepaid travel that you forfeit if your trip is interrupted or canceled. You must have paid the entire cost of your common carrier tickets with your credit card. Make sure to read the fine print to understand the terms and conditions of these and other credit card travel protections. (Before going on your trip, find out what kind of insurance coverage you need. For more, see The Basics Of Travel Insurance.)

5. Security
Another credit card perk that can come in handy while traveling is hotel burglary insurance. If your personal property is stolen from your hotel room and you pay for your entire hotel stay with a credit card that offers this benefit, the card company will reimburse you for your loss. Also, in the event that your card is stolen, you'll be protected from unauthorized charges like you would be at home. If your cash is stolen, however, you're out of luck.

6. Exchange Rates
What exchange rate will you receive when you use your credit card for foreign purchases? How do you know if it's a fair exchange rate, let alone a good one? This is one area where you don't have to worry, credit cards offer consumers better foreign exchange rates than those available at foreign banks or currency exchange booths.

7. APR
If you can't afford to pay for your trip with money you already have, you should probably be staying home. But if you are planning to go into credit card debt to finance your international trip, getting the card with the lowest APR may be your most important consideration. A lower interest rate means you'll pay less interest and be able to pay off the trip faster. (Banks use these rates to entice borrowers and investors. For more, see APR and APY: Why Your Bank Hopes You Can't Tell The Difference.)

8. Acceptance and New Technology
Some countries do not widely accept credit cards. Some merchants may want to see your passport as identification when you want to use your card, and you may be loathed to take out this critical document when it's not absolutely necessary. If you travel off the beaten path, a credit card may be almost useless because vendors will expect payment in cash.

Read location-specific travel guides before you go to learn about the ease or difficulty of using a credit card at your destination. Find out in advance if the hotels you'll be staying at accept credit cards. Also, choose a credit card from an internationally recognized company like Mastercard, Visa or American Express.

Along with the traditional difficulties in using credit cards internationally, new technology could also make it harder for you to pay with plastic. In a recent New York Times article, "How to Avoid Credit Card Problems Abroad," reporter Michelle Higgins described the problems Americans have been having with using their traditional, magnetic-stripe credit cards abroad. The problem is that many foreign countries have adopted credit card microprocessor chip technology, which has only just started to be rolled out in the United States. If your card doesn't have a chip, it may not be accepted.

To avoid hassles associated with differing technologies, make sure to take at least one credit card that uses E.M.V. technology. If you can't get your hands on one, make sure to carry enough cash to complete any transactions where the difference in technology prevents you from using your traditional credit card. (For related reading, see 7 Factors For Comparing Credit Cards.)

TUTORIAL: Credit Cards: Pros And Cons

The Bottom Line
There are hundreds of different credit cards available and they all have different benefits and drawbacks. To find the travel credit card that's right for you, consider using a credit card comparison website such as CreditKarma.com, which lets users view credit cards by their primary features. Whether you take an existing card or apply for a new one, make sure to read all of the fine print before you leave so you'll be familiar with the fees and benefits that will apply while you're abroad. Also, consider taking two or three different cards so you can take advantage of the best features of each and so you'll have a backup in case a problem arises with one card. (For related reading, see How Credit Cards Built A Plastic Empire.)




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