Ok, ok, but what makes a credit card expensive? I thought they give it to you for free! Yes, the banks give the credit cards out for free, but using a credit card, especially while traveling internationally is definitely NOT FREE!
What makes using a credit card expensive when used abroad?
Using a credit card in the USA is free most of the times, provided you pay your balance in full at the end of the month and the credit card doesn’t have any annual fees.
However, when traveling abroad, using a credit card can be very expensive. Let’s see why:
- Foreign transaction fee charged by the issuing bank. Most banks charge anywhere between 1% and 3% of the purchase for any foreign transaction, which includes the 1% foreign transaction fees charged by the credit networks (VISA or MasterCard). So, if you spend $1000 for a purchases made abroad, you will be charged anywhere between $10 and $30 by the bank. Most likely when traveling abroad, people spend way more than $1000…so it can add up fast.
- Foreign currency withdrawal fees. Any credit card company charges between 20% and 30% interest on any cash advances, in addition to foreign conversion fees. It’s crazy! Please don’t ever use your credit card to take money out of an ATM machine, especially abroad! You will be literally ripped off by your credit card company, period.
In addition to shopping for the best travel credit cards you also need to pay attention to some simple steps for using debit and credit cards in Europe. Following these steps can save you lots of frustration and money in fees.
If you make purchases of $1000 abroad using a regular US credit card you will end up paying anywhere from $10 to $30 in extra fees. Most US credit cards charge around 3% foreign transaction fees which means an extra $30 in fees for each $1000 spent.
Two kinds of great travel credit cards
The banks have tons and tons of credit cards for different purposes and different credit scores. How do you choose the best travel credit card for international travel?
The answer is pretty simple because when it comes to finding a great travel credit card. There are essentially two kinds of credit cards without foreign transaction fees: cash back travel credit cards and rewards travel credit cards.
Rewards travel credit cards are more complicated but they have extra benefits: you can get airline miles, free hotel nights, free car rental damage insurance and other travel rewards. The best of the rewards travel credit cards do come with an annual fee however…somewhere between $50 and $100.
Cash back travel credit cards are simple: you use the card and as you spend money and you get cash back in your account. The more cash back you get, the better.
So, it really depends on what kind of traveler you are and how much time you are willing to spend on dealing with redeeming rewards.
The best rewards travel credit card
When it comes to travel credit cards with rewards, all of the good ones offer no foreign transaction fees. But in addition to that, they offer a great sign up bonus and other important travel rewards.
My favorite travel credit card with rewards is the Chase Sapphire Preferred credit card. Take a look at these awesome benefits:
- Flexible rewards points. Ultimate Rewards points can be redeemed as cash back, gift cards, travel bookings or simply transfer them to one of the partner airlines. Ultimate Rewards points are very flexible and easy to use.
- Transferable rewards points. The points you receive can be transferred to your favorite airline to redeem for free flights. Not all airlines participate but there is a good list to choose from. This is probably one of the best benefits of the Chase Sapphire Preferred credit card in my opinion.
- The largest sign-up bonus. Up to 55,000 points just for signing up which can translate to 55000 miles or even 63000 miles when redeemed through the Chase Rewards site
- No foreign transaction fees. No fees charged by Chase or VISA.
- Visa Signature travel benefits like travel insurance and car rental damage waiver.
What’s bad about this travel credit card then? Well…there is a $95 annual fee after the first year. So you could technically keep it for one year and accumulate as many points you can and then transfer them to the airline of your choice before closing the account. However, I don’t mind paying the annual fee considering all the benefits. Not a bad deal!
The best cash back travel credit card
The winners for me as far as cash back travel credit cards are the Capital One Quicksilver credit card and Citibank/Costco credit card. Any Capital One credit card will have the first four features listed below, but with the Quicksilver card you also get cash back.
Let’s see why the Capital Once Quicksilver credit card is the cheapest and simplest travel credit card to use in Europe:
- No foreign transaction fee charged by Capital One. Capital One doesn’t charge ANY foreign transaction fees for any of their credit cards. Capital One used to be the only US bank that didn’t charge foreign transaction fees, but that’s no longer the case.
- No fees charged by the credit network. Even though, it’s a Master Card or Visa, Capital One swallows the 1% fee that VISA and Master Card charge for foreign transactions. Capital One pays these fees!
- You get the best exchange rate! Over the years, during many international trips, I have checked the exchange rate on my purchases done with Capital One credit card in Europe, and I was impressed every time. Frequently, I checked the published rates against the rate I was getting from Capital One and it was the best rate I could get.
- No annual fee. Really…nothing.
- You get 1.5% Cash Back on every purchase, including foreign transactions. Not only it’s free to use but you also get money back.
- Easy cash back redemption. Unlike most miles/points travel credit cards, the Capital One web site makes it very easy to redeem the cash rewards you accumulate. You can simply apply your cash back to the credit card balance with one click.
- VISA Signature or Master Card Elite Travel Benefits. This means a lot of stuff: rental car collision and damage insurance, lost luggage insurance and trip cancellation insurance among other things. These benefits come very handy and can save you quite a bit of money.
Starting January 25, 2018 the Citibank / Costco VISA Signature credit card has become a great travel credit card as well. The reason is that Citibank has decided to eliminate all foreign transaction fees. The Costco/Citibank VISA card is already the best cash back credit card for Costco members, and now it has become a great travel credit card as well.
Here are the best feature of the Citibank/Costco VISA card which make it a great travel credit card:
- No foreign transaction fees. Starting January 25, 2018, Citibank has eliminated all foreign transaction fees.
- Excellent cash back. With 4% for gas, 3% for travel and restaurants, 2% for Costco purchases and 1% everywhere else, this is the strongest cash back rewards I know of.
- VISA Signature rewards. Many benefits included, but for travelers, this credit card provides free rental car damage and loss insurance. In the US, it is secondary to your own auto insurance, but internationally it is primary.
The only drawback of the Citi/Costco card is that the cash rewards can be redeemed only at Costco stores or online. But if you are a Costco member already and shop there, then it doesn’t really matter.
If you are planning a trip, don’t forget about a safe and comfortable money belt for keeping your money and credit cards safe and available. Or, if you’re like me and need more space you might prefer a safe and roomy fanny pack that you can carry everyday. It has always been a lifesaver for me.
What is the best travel credit card?
The answer depends on you. For me, I need flexible rewards points and travel perks that I get from the Chase Sapphire Preferred. There you have it, this is my best travel credit card.
Article Series: How to maximize your travel budget.
- 10 simple rules for using your Debit and Credit Cards in Europe
- Best travel credit cards
- Best travel debit cards
- Get the best foreign exchange rate
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