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Manage Your Travel Budget by Understanding International Credit Card Fees

Many travellers headed abroad prefer to use their credit cards to pay things as much as possible whether it be settling hotel bills, booking tours, or paying for that giant novelty sombrero that you battled hard to barter down to a bargain price of ‘just’ 300 pesos.

This is very understandable. Credit card payment networks like Visa and Mastercard are ubiquitous and work pretty much anywhere on earth, paying on a credit card offers a good degree of payment and protection and security, and some issuers even try to tempt account holders in by throwing in little extras such as travel insurance or air miles.

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While credit cards are certainly a popular way to pay for travel, they are not perfect in any way. The vast majority of credit cards carry foreign transaction fees and these can be considered as we shall see. Over the course of this post, we are going to look closer at the costs of a credit card internationally as well as some alternative ways to pay for travel.

travel wallet with cash, sunglasses, glasses

How International Credit Card Fees Work

Usually, whenever a credit card holder uses their card internationally (either in a different country or paying in a foreign currency from within their own country) the issuer charges foreign transaction fees. In the US, the general radius is between 2.75% – 2.99% added to the value of the transaction. This fee can usually be broken down as a 1% fee charged by the network (such as Visa) and then a foreign exchange “markup” charged by the card issuer.

While a 2.75% fee may not seem too bad, over the course of an entire vacation it can add up. Also, note that sometimes the merchant may also charge a separate fee for letting you pay on a credit card.

Finally, credit cards come with huge interest rates that usually range between 15% – 30% and if a customer fails to clear the balance by the due date, then those travel costs suddenly become disproportionately expensive.

What You Can Do

There is not a great deal that most customers can do about this. Some credit card providers do issue cards that offer fee-free foreign transactions but it is not the industry standard. Furthermore, these cards may come with higher interest rates or annual account custody fees which may negate the value of the savings anyway.

Related: Learn How to Travel for Free, Like We Did, With Travel Freely

Alternatives To Using Credit Card Overseas

With that in mind let’s run through the alternatives to using credit cards internationally.

Debit Card

The obvious alternative to using a credit card abroad is to use a bank debit card instead. However, this is usually counter-cost effective. Many debit cards come with 2 sets of fees attached – a fixed transaction fee or minimum fee (often around $3) and then the bank will apply a foreign currency exchange “markup” or between 2% – 4%.

Many travellers only learn how expensive using a debit card abroad can be the hard way after getting home and opening their monthly statement. Additionally, even without taking the foreign exchange markup into account incurring a $3 fee paying for $1.50 coffee makes little sense.

Bring Cash

Another option is to bring cash and then change it into local currency at your destination – after all money changers are everywhere. This is not a bad strategy –  while foreign exchange desks never offer the open market rate, they often offer an exchange rate with a markup of between 1% – 2% and are sometimes even willing to negotiate if you are changing a bigger amount.

The downside here is that bringing large amounts of cash can be dangerous in case of theft or loss – even the best travel insurance policy rarely protects cash losses.

Related: Travel Insurance for Europe Vacation: Do You Need It?

money transfer between cellphones

Pay By Bank Transfer

Paying for travel costs by bank transfer can sometimes prove to be a very cost-effective option depending on a number of variables as we shall now break down.

Whenever banks process an international payment, they do charge a foreign transaction fee. This is usually a fixed amount and both the sender’s bank and the recipient’s bank will also charge a fee. In the US, these fees range from $2.75 – $50 so the scale is pretty broad.

As well as charging the fixed transaction fee, banks also apply a foreign exchange “markup” which is usually somewhere between 2% – 4%. Let’s see how this works in practice;

  • Tour Cost = $5k
  • Bank Fee = $5
  • Recipient Bank Fee = $5
  • Mark Up of 3% (calculated on $5,010) = $150.30
  • TOTAL COST = $5,160.30 

Because of the fixed transaction fees, using bank transfer to make smaller purchases is not usually sensible but it can be a highly effective way to pay for higher-value travel expenses such as organized tours.

Prepaid Travel Cards

Prepaid travel cards can also be an effective way to pay for travel. They are usually app-based and travellers can simply load up the card with money and then spend it once they arrive at their destination. As well as allowing effective budget control, some offer fee-free foreign card payments and even fee-free ATM withdrawals up to a certain monthly limit.

However, they apply a foreign exchange markup and it is important to pay attention to what rate is being applied in order to ensure that using a prepaid travel card remains cost-effective.

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Final Thoughts

Travel will always come with costs associated but, by taking some time to carefully consider payment methods, you can manage those costs. To summarise credit cards can be effective but risky, debit cards tend to be expensive and prepaid travel cards are an excellent addition to a traveller’s arsenal.

Bank transfers on the other hand can be very effective for making larger international payments depending on the specifics of the transaction fees that your bank charges.

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About Nicky Omohundro

Nicky Omohundro is a travel and active family lifestyle blogger and social media influencer based out of Oklahoma City, Oklahoma. She shares stories, destinations, and ideas on food, family, health, and outdoor recreation to help families find their own adventures. Her spirit animal is a caffeinated squirrel fueled by coffee, real food, and the desire to seek new adventures.

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