Q: A few years ago we had some financial troubles. It was a second marriage for each of us and we both came into it with baggage. It’s taken time, but we’ve managed to get on track. We still owe a little on a debt consolidation loan, but the end is in sight. We haven’t had a family summer holiday in about five years, so before the kids are out of high school we figure we should go. It’s a bit scary, though, to think that two weeks of living off a credit card could take us right back to the difficulties we had in the past. At home, we have a cash budget to help keep us accountable to our goals but travelling with cash just isn’t safe. Are we making a mistake to travel with a credit card? ~Drew
A: There’s a certain amount of safety, security and convenience we rely on with our credit cards, and those are three great reasons to not leave home without at least one card when we go on holidays. However, along with the pros come the cons. You’ve identified one of the biggest – you don’t want to end up in debt and have money trouble just because you went on a family vacation.
This is a very real fear for many, but with some planning, it’s also one you can work around by outlining a vacation budget. Decide ahead of time what can you afford to spend while you’re away, and how long it will take you to repay expenses charged to a credit card. Many people also don’t realize that it is perfectly fine, when your credit card is in good standing, to pre-pay it. For instance, if you’ve saved up a vacation fund you might want to pay a portion of it, i.e. the accommodation amount, to a credit card ahead of time.
Before you pack up and go, here are some more potential mistakes to watch out for:
Be aware of foreign transaction fees
Using a Canadian credit card outside of Canada can add to the cost of your holiday because Canadian credit cards charge a foreign transaction fee for every purchase you make. It is an average of about 2.5 per cent added to the cost of everything you buy with your card, and very few cards have no such fee . The fee is also typically combined with the currency conversion rate, so it can be hard to spot.
There’s no denying the convenience of a credit card when making purchases outside of Canada, so your best bet to get around foreign transaction fees is to find a card with rewards, loyalty points,or cash back that help offset it.
Avoid taking cash advances
Withdrawing cash from your credit card is already expensive in Canada, but it can be even more expensive while travelling once foreign ATM fees and exchange are added on. However, the worst hit from cash advances comes in the form of interest. It starts accruing right away at a rate slightly higher than the one for normal purchases; this means that there is no interest free grace period when you take a cash advance.
If you find yourself needing to pay your way out of an emergency, try charging whatever portion of the expense you can charge to minimize how big a cash advance you must take. Ultimately, the best ways to get cash when you’re away from home are to bring it with you or to withdraw it from your bank account with a debit card during your holiday. Save taking a cash advance as a last resort.
Understand credit card authorizations
Most hotels, car or recreational vehicle/equipment rental places, and even gas stations with pre-pay hold a certain amount of your credit limit in case they need to charge you for something later on. It’s a way to guarantee that you’ll be able to pay the bill. However, if you don’t factor in how much they are holding, and when unused authorization amounts will be released, you could find yourself unable to use your card even well after returning from holidays.
It takes time for unused authorization limits to be released – anywhere from a few days within Canada, to a few weeks from the USA and as much as a few months if you’ve been overseas. Call your credit card company before you travel to inquire if there’s any way to speed the process along. To help avoid a nasty surprise, ask how much is being held and consider using a secondary credit card to secure the authorization. Many places will still let you pay with whichever card you choose when it comes time to settle the bill.
On a related note, if for some reason you are providing an authorization for someone else, e.g. a hotel for a friend, be sure to specify exactly what you are willing to pay for, i.e. the room but not all of the contents of the mini bar. Let your friend know so that they can come prepared to provide an authorization for charges they’ll be responsible for themselves.
Plan when and how to make payments
One of the biggest mistakes you can make is not planning how to make your credit card payments while you’re travelling. Conducting banking transactions on your smartphone while connected to an open Wi-Fi network leaves you extremely vulnerable to compromise.
Skipping a payment is not a good idea and could leave you stranded, so make payment planning part of your overall vacation planning process. While you’re away, if a joint account holder is not traveling with you, you could ask them to do it. Another way is to set up a future-dated payment through your online banking system. If you must do it yourself while you’re away, use a secure network or telephone banking.
Keep your credit cards safe and secure
Keep your credit cards as safe and secure as possible while travelling; on your person, locked in a safe at your destination, hidden in a concealed pocket and never unattended anywhere. If you travel with more than one credit card, e.g. a Visa and a MasterCard, separate them so that if one is lost or stolen you still have access to the other one.
When using your card, keep it in sight at all times, especially if someone looks like they will slide the magnetic strip through their payment processing machine (this helps prevent skimming). Sign the back of your card – many people forget, but there are still countries where you sign for purchases. Cover the keypad while entering your PIN, and even consider changing your PIN when you get home for an added layer of security.
Keep copies of everything that’s in your wallet – including your passport and emergency contact numbers on the backs of your cards, separate from what would easily go missing. That way you’ll have the details handy in case you need to report that your card is lost or stolen. Scanning and emailing the information to a web or cloud-based account that you can access from anywhere makes it easy to retrieve the information should your travels hit a snag.
The bottom line on credit card mistakes while on vacation
When it comes to using credit cards while on vacation, one of the most important things you need to do comes afterwards, and it happens before paying the bills; reconcile your statements. Compare what shows up on your statements with all of your receipts to make certain that the charges are accurate. If you don’t recognize a charge call the credit card company right away and ask for more information to ensure that it really is yours to pay. Vacations are expensive enough without paying for someone else’s memories!
Scott Hannah is president of the Credit Counselling Society, a non-profit organization. For more information about managing your money or debt, contact Scott by email , check www.nomoredebts.org or call 1-888-527-8999.
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