Hidden fees and other risks: the disadvantages of using a credit card abroad

The disadvantages of using a credit card abroad haven’t stopped it from becoming an extremely popular way of paying while traveling. While most people are aware that foreign transaction fees are involved, there are other drawbacks to be aware of.  

It’s certainly convenient to use a credit card abroad since they’re so widely accepted. Credit and debit cards from the major card networks are now accepted in stores and ATMs worldwide. Whether you’re withdrawing cash abroad or paying in a store, using your credit card is simple. Yet, that doesn’t mean that it always makes good financial sense.

You don’t need to take cash with you or worry about changing money into foreign currency when you travel with a credit card. Just use it exactly like you would at home, with no fuss. So why is it still considered a risky approach with some drawbacks?

Potential downsides and costs

International credit card use isn’t as straightforward as you might think. While making transactions abroad is easy, you might end up paying a lot more. Every purchase abroad and all your ATM withdrawals can result in you losing more money than you expect to use.

That’s because of the conversion fees and other charges you’re likely to receive when spending abroad. It’s generally an expensive way to convert your domestic currency into the local currency. It applies equally to in-store purchases and when you use ATMs abroad, as credit cards charge in both cases.

Foreign transaction fees

The main concern for travelers is how foreign transaction fees on a credit or debit card can add up. You probably already pay an annual fee on your credit card, so you don’t want more fees during your overseas travel.

However, you’ll find that some providers charge high fees for credit card use overseas. It can blow a hole in your travel budget.  If you’re on a long trip or plan on making purchases in several stores, these fees are going to add up. However, on short trips where you’re not making any large purchases, you should still weigh up the cost vs the convenience. 

Things get more complicated if you’re going to be spending multiple currencies on a credit card. Traveling to a few countries with different currencies is a situation where using a credit card seems best. You probably don’t want the hassle of carrying cash and then having to exchange cash in every country. Yet, the fees for making purchases and taking out cash through ATM withdrawals could be particularly high in some countries. 

Examples of common credit card fee percentages

When you use your credit card abroad, expect to be charged a percentage of your transaction as a foreign transaction fee. It is typically in the 1% to 3% range. Any normal charges made when you withdraw your home currency will also apply when you’re abroad.  

You should also be aware that foreign ATMs may charge an extra fee when you use them with a credit or debit card. Therefore, it’s difficult to work out in advance exactly how much the fees will be for using a credit card while traveling abroad. 

Unfavorable exchange rates

The exchange rates you receive vary depending on the bank you use. However, foreign currency conversion using a credit card may be done at less favorable rates. When you exchange money in this way, the rate is unlikely to be the same as that you get offered for a cash exchange in the bank.

You should check with your bank or credit card provider to see what exchange rate is used on credit card purchases and ATM withdrawals abroad. Don’t forget that you need to add the difference in exchange rates to the international transaction fee to get a true figure for what it’s going to cost you to use your credit card in other countries.

Since the rates change constantly, banks use dynamic currency conversion systems to offer the right rate on a credit or debit card. It means you need to be aware of changes while you’re away. If you’ve set a budget based on the current exchange rate, you’ll want to revise it when the currency exchange rate changes. 

How the rates can impact your total travel costs

The exchange rate might not seem like a big deal, but it could add an extra cost to your budget when you make cash withdrawals or in-store payments abroad using a credit card. When you get favorable exchange rates, it makes it a lot easier to stretch your budget to cover everything you want to do.

Interest rates and charges

One of the key disadvantages of credit card use is that it can lead to debt accumulation. It is due to the interest rates and charges that can build up. This is a potential issue when you use your card at home or abroad. It’s unlike a debit card, which takes money from your bank account in that you borrow money rather than only spend what’s in your account.

However, credit cards as payment options in other countries can lead to a higher balance than you’d like. It can be tricky to keep an eye on your balance while traveling, particularly on longer trips where you have a lot of expenses to cover. Add in the international transaction fees, and it’s easy to see how the debt can get out of hand if you aren’t careful.

Letting your credit card balance run out of control can lead to problems as the debt builds up and more interest is added to it by the credit card company. It could eventually affect the credit scores of users who miss a payment, making it more difficult to get credit in the future. 

Security risks

Fraud protection is another important subject when you use credit or debit cards abroad. Your credit card issuer may notice suspicious activity and block the card, but what if you suffer fraud or identity theft while traveling?

Global credit card fraud is expected to reach an annual $43 billion by 2026, with almost half of it happening in the US. It can happen anywhere in the world, but you are more at risk when away from home, as this is when you come into contact with unfamiliar stores and ATMs.

Even if you have fraud protection cover on your credit card, it’s going to be a hassle if you need to contact the credit card company to get it blocked and then replace it on your travels. It is why taking a credit card abroad can be a hassle, even if you go to a country renowned for safety and if it has a payment network you use.  

The potential complications of dealing with unauthorized transactions from overseas

What if your credit card company spots unusual transactions while you’re abroad? They may try to contact you to find out if you made them or not. It can complicate your trip in several ways.

If they can’t get hold of you to check foreign transactions, the credit or debit card issuer may block the card so it is safe. Or you could waste valuable time trying to speak to the right person and then explaining the situation to them. You may not remember making certain purchases, so it could be a difficult conversation. 

Genome’s cards: a smart alternative

You don’t have to use a credit card abroad, as there are modern, secure alternatives for travelers. For instance, you can use Genome’s virtual Visa debit card. There are various reasons why this card can prove to be an excellent choice for use abroad. It offers favorable exchange rates and enhanced security features like tokenization that keep your details safe online. 

All our virtual cards are contactless and compatible with Apple Pay, Google Pay, and Garmin Pay. So you can easily link them to your mobile wallet and pay on the go or online.

And, if you travel to a country that doesn’t have many stores with contactless payments enabled, you can always order a physical Visa debit card. You can pay with it at any place that accepts Visa cards!

One of the biggest advantages is that all our cards have a multi-currency feature. You can link your cards to Genome accounts in EUR, USD, GBP, PLN, CHF, CZK, HUF, or SEK, allowing for cost-effective payments.

In this way, you can avoid big transaction fees and the risk of your credit card being stolen, lost, or even cloned. You can use Genome’s cards online to make purchases anywhere in the world. With excellent exchange rates and the ability to check your transactions instantly at any time, it’s an extremely safe way to spend as you travel, with additional benefits. 

How Genome’s services can optimize financial management for travelers

Our virtual and physical debit cards are just one of the ways that we make life easier for travelers. Other services, such as multi-currency accounts and real-time notifications, ensure that you stay in control of your money no matter where you travel. Moreover, all our clients access SEPA Instant and Credit Transfers for seamless payments across the EU.

You can download our Genome app and always have your full financial history at your fingertips. Our products and services are designed to support the financial needs of businesses and individuals with no hassle and no delays in finding out what transactions have gone through.

Summary of using credit cards abroad

Transaction fees, poor foreign currency exchange rates, and increased security risks are among the main reasons why taking your credit card abroad can be a risky move. It certainly seems convenient at first sight, but these possible disadvantages are worth bearing in mind.

You should consider alternative solutions like Genome’s virtual debit cards for a more cost-effective and secure travel experience. With Genome as your card issuer and financial services provider, you can travel more securely and feel that your money is safe at all times. There’s no need to carry large amounts of foreign currency with you or worry about the safety of a physical credit card.