Planning a trip abroad is fun and exciting when you’re looking through the local attractions and planning your itinerary, but there are lots of logistics to figure out as well. One of the main things you need to decide is how you’re planning to pay for things once you get there.
Rewind a couple of decades and cash was the most popular form of payment used, both locally and abroad. You probably have memories of your parents or relatives exchanging wads of cash at the airport or bank to get the local currency. However, while cash is still very convenient and reliable, it is not that safe to carry around large amounts of it. Plus, with cashless payment options being accepted pretty much anywhere on the planet, why would you take the risk?
Cashless Payment Methods
With the advancement in financial technology, fintech, to be precise, the world has been introduced to a number of ways to pay for things without the use of cash. These include bank transfers, UPI apps, mobile wallets, e-wallets, cheques, and more. These are all great to use domestically, but might not always work as well in a foreign country. Therefore, we are left with two of the most popular forms of cashless payments that can be relied upon when traveling: credit cards and travel cards.
Credit Cards vs. Travel Cards
Most of us are pretty aware of the concept of credit cards. They allow us to use the money borrowed from a financial institution to pay for things with the condition that we must pay back the supposed loan. This can be done all at once or in installments over time, and interest charges may be applicable as well. Most credit cards are widely accepted all over the world, especially if they are Visa or Mastercard.
Travel cards, on the other hand, only use a preloaded amount of money to pay for transactions in shops or online when you are overseas. The main selling point of travel cards is that they can be loaded with money from the local currency, locking in the exchange rate on the date of the conversion. Certain travel cards also allow multiple currencies to be loaded onto one card, making it simple and convenient when traveling to multiple countries.
Pros & Cons of Credit Cards for Travel Purposes
Pro: Accepted Widely
Credit cards are accepted widely across the globe. Visa and Mastercard are two of the most recognizable names when it comes to cashless transactions anywhere in the world, but several other cards such as Amex and Diners are also pretty popular.
Pro: Allows for a Flexible Budget
Try as you might to determine an accurate budget, there are always unexpected costs that arise when traveling overseas. Credit cards allow you to spend money without worrying about running out of cash. However, keep in mind that you shouldn’t spend unnecessarily even with a credit card, as it is a type of loan that will eventually need to be paid back.
Pro: Convenient for Pre-Booking
If you plan to make bookings for anything from flights and hotels to tours and attractions, chances are that the vendor will require pre-payment or even just have a card registered on the booking. You cannot do this with cash.
Pro: Extra Perks
Lots of credit cards also come with a number of extra perks. You may be able to get some great offers such as frequent flyer points, cashback and other deals with participating merchants, and even perks like flight upgrades. Certain credit cards may even provide perks like travel insurance and interest-free days!
Cons: Currency Conversion & International Transaction Fees
When using credit cards abroad, it’s important to keep in mind that you will later have to pay back your credit card bill using your local currency. This means that are currency conversion fee is likely to be levied upon your transaction on top of the exchange rate. Plus, there may be an additional fee charged for international transactions. Each of these charges can be as high as 3% of the total transaction, so when all is said and done, you may be facing a 6% upcharge on your expenses – which is massive!
Therefore, it is worth checking with your bank if there are any conditions where such charges would be waived. You may also consider getting a credit card that is targeted toward travelers. These come with extra travel perks and sometimes, even fee waivers for international transactions. However, be aware that they may come with high annual fees.
Cons: Temptations to Overspend
While credit cards allow you to stretch your budget, they can also tempt you to stretch it so much that you end up overspending. It may feel like a problem for another time when you’re swiping and tapping away, but you should never forget that credit cards are a form of loan and will need to be paid back!
Pros & Cons of Travel Cards for Travel Purposes
Pro: Locked-In Exchange Rate
When you pre-load money into a travel card, it is the exchange rate on that particular day that is considered. You will not have to worry about fluctuating rates later on. Therefore, you can pick a day when the rate is low to do this. However, if you need to top up the amount at a later date, the exchange rate on that day is what you will be charged.
Pro: Can Load Multiple Currencies
Exchange rates are always a concern when traveling abroad, and more so if you plan to travel to more than one country. With a travel card, you can get this sorted out well before getting on your flight. There is no hassle of having to convert money at the airport when you land or even worrying about different charges in different countries such as when using credit cards.
Pro: Avoid Currency Conversion & International Transaction Fees
As discussed above credit cards, and transactions made abroad with them may be privy to currency conversion and international transaction fees. However, you do not have to worry about such charges with a travel card as the money has also been converted into local currency.
Pro: Easier to Follow a Budget
Since the money in a travel card is preloaded, you may be able to avoid the temptation to overspend, thereby making it easier to stick to a budget. You also know exactly how much money you have left to spend, so you can plan your transactions accordingly.
Con: Fees & Charges
While travel cards help you avoid currency conversion and foreign transaction fees, there are still a number of other fees to consider. For instance, there would be a fee charged for the purchase and issue of the card and potentially also for its cancellation later on. Aside from the exchange rate fees charged when loading money onto the card, the same may be applied when you cash out the balance once you return from your trip. Plus, even travel cards may charge you an extra fee for withdrawing money from an ATM in a foreign country.
Cons: Long Load Times
When money is loaded into a travel card, there may be a waiting period for them to be converted to the other currency. This may take up to 3 days! During this time, this money cannot be accessed, either in your local currency or the foreign one. Therefore, you will need to consider this waiting period in your planning, and you cannot top up the card as you wish.
Cons: Other Limitations
In the case of pre-booking, certain merchants require the pre-authorization of your card. In many cases, travel cards (similar to debit cards) may not be accepted for this purpose as there is no guarantee as to whether there will be enough funds at the time of purchase even if there are at the time of booking. You may also not be able to use your travel card for pre-booking services if your funds are on hold due to the initial loading period.
What About Using Debit Cards While Travelling?
Debit cards are sort of an in-between of both credit cards and travel cards. You can certainly use your debit card to make purchases abroad, although depending on the bank, you may have to check whether the feature is enabled.
Similar to a travel card, you will only be able to use a pre-paid amount, i.e., in this case, how much ever you have in your bank account. However, unlike a travel card, there is no fixed exchange rate. In this instance, it is similar to a credit card where the exchange rate can vary depending on the date of the transaction. Certain vendors may even impose an additional surcharge on the transaction amount when processing debit cards.
For these reasons, we summarize that using debit cards while traveling, while convenient and reliable, may not be the best choice financially. However, each circumstance may be different. Make sure to check with your bank and your local laws to figure out which would be the best choice.
