Credit cards & cash advances for travelers

Using credit cards—Visa, MasterCard, American Express, and others—when traveling

Europe takes plastic—in fact, credit cards are usually the easiest and most-cost effective method of paying for anything while traveling.

• Using credit cards
• Understanding rates
• Low-fee credit cards
• Cash advance issues
• Advise the cc before travel to avoid problems
• Chip-and-PIN cardsUsing credit cards is by far the cheapest way to pay for things in a foreign country, with exchange rates averaging 9% better than even cash withdrawals from an ATM (the second cheapest way to pay for things).

Most everywhere—particularly in the U.S., Canada, and Europe—takes plastic, right down to most of the smallest shops and bistros. And, contrary to the old commercials, you can leave home without American Express (www.americanexpress.com) and never notice the difference.

Visa (www.visa.com) and MasterCard (www.mastercard.com) are much more widely accepted abroad these days, partly because they've partnered with major European cards, and partly because AMEX charges higher fees to the merchants and is slower in paying them, so many small family businesses have stopped accepting it, arguing—with a good point—that nowadays "Everybody has Visa!"

Diner's Club (www.dinersclub.com) is accepted in many places (though usually, as expected, only the pricier joints). So is Japan's JCB (which I throw in there in case any Japanese people happen to be reading this.).

Discover or any other card will only elicit a raised eyebrow of curiosity and shake of the head from your waiter or merchant; leave any other card at home.

Playing the rate game

You can get much more on financial issues at the excellent financial planning sites BankRate.com (bankrate.com) and Card Hub (cardhub.com) and at this wiki on FlyerGuide.com.

While paying with credit cards does get you a better exchange rate than with cash, know that Visa itself imposes a 1% "commission" for foreign purchases/cash advances.

Many Visa-issuing banks—recognizing yet another good way to fleece its own customers—tack on additional 1%, 2%, or even 3% "commissions" of their own. They will tell you this is a banking fee for performing the currency exchange. They are lying.

The chip cards cometh
The U.S. is woefully behind the rest of the world when it comes to implementing advanced technology in everyday life.

Japanese and European cell phones (and networks) are better, many cities now use radio cards for public transport that you just wave at the turnstile while waltzing though (in Hong Kong, you can use your Metro card to buy snacks at 7-11), and many countries are now using more advanced credit cards called "chip and PIN" with computer chips built in (rather than just the magnetic stripe; note, this is different from the radio chip in an AMEX Blue card).

Why do I risk the wrath of my more zealously patriotic fellow citizens by pointing all this out? Because, in a very few (but, ominously, increasing) number of cases, you will find merchants and services in Europe that only accept the chip-and-PIN smartcards—most disruptively, this includes many gas stations (especially after-hours), ticketing machines for trains and public transport, and the bike rental kiosks that are proliferating in many major cities. To all of them, your old-school Visa with the magnetic strip is just a worthless slab of plastic. It simply will not work.

Best I can figure, the chipcard-only phenomenon started in Scandinavia, but it's spreading. In summer, 2009 I encountered it in Italy as well. (Luckily, the shop still had its old swiping machine, which they kindly dug out of a drawer, dusted off, plugged in, and used to run my card. I felt like a bumpkin who had tried to trade them a chicken for their services.) In the fall of 2010, I was actually turned away from a shop in Leipzig, Germany; their store policy —printed right by the register—was "smartcards only." In fall, 2011, I was unable to rent a bike in Dublin from the cheap public stands because they only accepted chip-and-PIN cards. A month later, I found I could not use the automated gas pumps in New Zealand.

It sucked.

Solution: Get a Travelex Cash Passport, currently the ONLY chip-and-pin card available to the general American market. It's a pre-paid card, so you have to fill it up with cash before you leave—and the exchange rate is an abysmal 14%–15% worse than with credit cards—but it can come in darn useful (www.us.travelex.com).

Also: pester your bank—repeatedly—to get with the program. A few American banks are starting to experiment with chip-and-PIN cards. Wells Fargo and JPMorgan Chase have each made limited numbers of what they call E.M.V. cards available to select customers. They have a chip and PIN, and they will work abroad.

Also, carry cash.

Keep apprised of news on this subject at www.creditcards.comThis is because:

1. The Visa corp has already performed the currency exchange before the transaction ever gets to your issuing bank (which receives the transaction in dollars), and
2. It's all electronic, so there's really nothing to "exchange" in the first place.

These extra few percentage points your bank is charging is 100% profit for them, pure and simple, and they are stealing it from you.

Luckily, there is a way around this: a low-fee credit card.

Where to get a low-fee credit card

Your best bet for a friendly, low-fee credit card is a credit union, a small local bank, an online bank, or one of the rare large banks that do not overcharge.

Since having an account with one of these financial institutions helps with other aspects of travel finances (such as low to no ATM fees)—not to mention offering better banking services at home to boot—I have created a separate page just on shopping for a better bank.

The computer yells "Stop, thief!" You're left high and dry

Call your card's issuing bank before you travel to let it know that you're taking a trip.

You need to talk to the fraud department and let them know the dates of your trip and the countries you will be visiting.

If you do not, you may find your card frozen when you try to use it abroad.

Most companies have a computerized watchdog that monitors your card's use, looking for radical changes in the frequency or location of charges. When it finds them, it freezes the account.

Ideally, this system alerts them if someone steals your card and goes on a shopping spree, but it has the unfortunate side effect of leaving travelers in the lurch, because on a typical vacation you're charging more than usual and charging from strange places.

(For what to do in case of real theft, see the "Losing Things" section.)

Avoiding cash advance charges

Some credit cards are now charging exorbitant "transaction fees"—plus a laughably inflated APR, which starts accruing immediately—for each cash advance through a credit card, so read the fine print carefully when choosing which Visa card to use on the road.

Use cash advances only in emergencies. These credit card folks are counting on your complacency to keep milking you for money. Don't give them the satisfaction.

Whenever you get a cash advance on a credit card, the bank starts charging you interest immediately , not after the end of the billing cycle's month as they do with purchases.

That means if you take out $200 on the first day of a two-week trip, for two weeks the credit card issuer will be charging you the highest possible interest rate (not that introductory 9.67%, but the industry ceiling of 18% or more), compounded daily, and will continue to do so until you pay your entire credit card bill all the way down.

They often tack on a one-time "service fee" of $5 or more as well.

You may be able to avoid all this, however, by being a bit sneaky: They can only charge you interest if you're carrying a balance. The trick is to make sure you never carry a balance on the card by overpaying your bill (by however much you expect to withdraw in cash advances, plus purchases) the month before you leave. It's silly, but it usually works.