Planning for a vacation is always exciting, sometimes even more exciting than the vacation itself! From deciding the places to visit to what attires to don, every aspect of vacation planning makes us feel ecstatic. If it is an international vacation, the financial aspect of the trip also becomes very important since it is not only about having enough funds but also about how you are going to carry the funds as your expenses are going to be in a currency different from the one you spend in your home country.
Cash vs Plastic Money
Carrying cash on an international vacation is not only inconvenient and cumbersome but also not the wisest of decisions from the security point of view. On the other hand, plastic money options like credit cards and debit cards are although more secure than cash, but card issuers usually levy a heavy charge on foreign currency transactions made with the cards. So what is the best option to go with?
Ideally, it is advisable to use plastic money for the majority of your expenses on a foreign trip, you should also carry some cash (obviously in the currency of the country you are visiting), as some merchants might not accept credit/debit cards, another possibility is your payment network might not be supported everywhere- for example, you might have a Diners Club card, while the merchant accepts cards issued only on Visa and MasterCard platforms only.
Carry Multiple Cards
If you have a credit/debit card issued on a payment network that is not as widely accepted as others- a Diners Club card or a RuPay card, you may find yourself in situations when your card is rejected by the merchant as they do not support the payment network of your credit/debit card Therefore, it is advisable to carry multiple cards with you on a foreign trip.
Enable International Transactions
As per the latest RBI guidelines, credit/debit cards are by default not enabled for international transactions. Therefore, before you pack your bags, you must not forget to enable your card for international transactions. In most cases, the card can be enabled for international transactions via internet banking or through the card issuer’s mobile app (see details on this post for the procedure for HDFC credit cards).
Credit Cards vs Debit Cards
While credit cards and debit cards are very much similar in terms of functionality and utility, there are more than enough reasons to choose credit cards over debit cards on international trips. First and foremost, credit cards are simply more secure than debit cards as credit cards almost always come with zero cost liability protection and credit card payments are settled between the issuer, the payment network and the merchant without any involvement of the cardholder at the time of transaction. Therefore, even if a transaction fails you do not suffer even a temporary monetary loss, which is not the case with debit cards. You might find this post useful if you are interested in more information advantages of credit cards over debit cards.
Another reason to prefer credit cards over debit cards on international trips is that many hotels that keep a certain amount on your card on hold to cover the incidentals (such as damage to the hotel property, consumption from the snack bar, etc.) do not accept debit cards. Credit cards are the only payment method that can be used at these hotels.
Check the Forex Mark-up Charges
Whenever you make a transaction with your credit card in a foreign currency, your card issuer charges a small fraction of the transacted amount as a mark-up fee for processing the transaction. Usually, the mark-up fee is around 3.5% of the transacted amount (plus GST).
Some credit cards- most super-premium credit cards and premium travel credit cards charge a lower mark-up fee on foreign currency transactions. For example, the mark-up fee applicable on transactions made in a foreign currency with HDFC Infinia Credit Card or HDFC Diners Club Black Credit Card, which are two of the most premium credit cards currently available in the market, is just 2% of the transaction amount. If you own one or more such credit cards with a lower foreign currency mark-up fee, you should always prefer them for making international transactions.
Avail the Travel Benefits
Many credit cards- premium credit cards and travel credit cards, in particular, offer many value-added travel benefits like complimentary airport lounge access, complimentary extra night stay at hotels, complimentary buffets at hotels, etc. So, before you book your tickets or reserve a hotel room, you must make yourself aware of all the travel benefits that your credit card comes bundled with. It is also important that you also go through all the relevant terms and conditions.
In order to make sure that you make the most out of your credit card (i.e. to use the credit card for maximum benefit), you must try to avail of all the benefits that you get with your credit card.
Try Prepaid Forex Cards
As mentioned earlier, card issuers levy a mark-up fee on transactions made with the card in a foreign currency. This mark-up fee on foreign currency transactions is applicable on both credit cards and debit cards. One easy way to avoid this mark-up fee is to use a Prepaid Forex Card instead of credit/debit cards.
Prepaid forex cards, as the name suggests, are prepaid cards, i.e. you have to load the cards with some amount before you can use them for making purchases. Most of these cards can be loaded in multiple currencies and no mark-up fee is applicable on transactions made in the currency loaded on the card. For example, if you load a prepaid forex card in USD, no mark-up fee will be charged on any transaction made with the card in USD. So, you should load your forex card with the home currency of the country you are visiting so that you are not charged any mark-up fee. These cards can be loaded as many times as you want- if you have spent the entire amount loaded on your card, you can always reload the card. Most banks allow reloading their forex cards via internet banking or through the bank’s mobile app.
Although no mark-up fee is applicable on foreign currency transactions made with prepaid forex cards, you do have to pay cash advance charges if you withdraw cash from an ATM. Most prepaid forex cards also charge an extra fee for balance inquiry at ATMs.
Avoid Dynamic Currency Conversion
When you pay with your credit/debit card in a foreign currency, the normal process is- the amount is paid by your card issuer to the merchant in the foreign currency (i.e. the currency of the merchant), which is later converted by the issuer to your home currency (INR in case of India) and reflected on your card’s statement.
Some merchants allow dynamic currency conversion at POS, i.e. the amount is converted into the card holder’s home currency at the point of sale itself, and then the card issuer pays to the merchant in your home currency. Although it might be convenient to see the transaction take place in your home currency, the exchange rate levied by the merchants is usually much higher than what your card issuer would have charged. Therefore, even if a merchant offers the dynamic currency conversion facility, it is better to not avail of the same so that you may get the best possible currency conversion rate.
Check the Due Amount on Your Credit Card
Once your trip is done and you are back home, it is a good idea to check that all the spends reflect correctly on your card’s statement. Most card issuers also allow you to see all the unbilled spends on the card before the statement is generated. In case you find any unsolicited spends on the card’s statement, you should immediately report the same to the card issuer.