Understanding Credit Card Foreign Transaction Fees

It’s important to read the fine print in credit card agreements so that you can find out about things like foreign transaction fees that your card may have.

Ever since the Credit Card Accountability, Responsibility and Disclosure Act of 2009, agreements are legally required to make their language clear and accessible for the average person.

You may that in recent years, your cards explicitly state information about these foreign transaction fees, as they are required to, but what are they all about?

What is a Foreign Transaction Fee

When you make a purchase in a foreign company, credit card companies will tack on an additional charge theoretically because making finances work between countries complicates things in the system.

The charge can either be a flat fee of a few dollars or a percentage increase the transaction amount almost as if it were a sales tax. These charges are almost certain to apply for cards that have them whenever money needs to move through a foreign bank like a purchase, a balance transfer, or a cash advance.

How to Avoid Foreign Transaction Fees

With many banks and credit cards, these fees are an inevitable part of managing your finances through your company. However, there are certain cards out there that may get around this.

These traveler specialized cards may come with no foreign transaction fees whatsoever but at a cost. For instance, you may have to already have a high credit rating to obtain them in the first place which means months or years of good credit behavior.

They may also have an annual fee which means that they may actually cost you more money than you save if you only travel outside your country once a year or so. As a result, cards that have no foreign transaction fees are generally only worth it for travelers who frequently find themselves in foreign countries.

Figuring Out if a 0 Foreign Transaction Fee Card is Right for You

As previously mentioned, these low or zero foreign transaction fee cards typically come with an annual fee. Assuming that you already qualify for the card in question, this means that you will need to spend a certain amount of money in foreign countries in order for the card to be worth it.

You can use simple math in order to calculate this. For instance, if a regular card has a 3% fee on everything purchased in foreign countries while another card has no foreign charges but a $50 annual fee then you would have to spend at least ($50 / 0.03) or $1667 dollars in order to break even.

If you spend more money on your card while in foreign countries, then these cards will save you money.

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