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The Worst Credit Card Gotchas to Avoid When You Travel

These days, credit cards and debit cards are almost as much a part of travel as planes, trains, and automobiles. Doing an entire trip with nothing but cash or checks seems almost quaint. But those of us who rely on credit or debit cards have to be on the lookout for gotchas from the card companies. Here are eight of the worst you’re likely to encounter.

Currency Exchange Fees

Charging extra for foreign transactions has had an up-and-down history. For a long time, transactions originating outside the U.S. were converted at a wholesale rate, plus a fee of about one percent to the MasterCard and Visa networks for the actual conversion, and posted to your account as converted. Later, cards started adding fees, generally three percent, to those transactions—even transactions conducted in U.S. dollars.

Most recently, a fair number of traveler-oriented cards—especially premium airline cards—have removed the three percent surcharge, or at least reduced it to the one percent network fee. But plenty of banks still add their own fee of two percent or so.

The foreign-purchase surcharge is one of those small fees that generate a disproportionate amount of consumer annoyance. After all, two to three percent is below the noise level for many travelers. But savvy consumers know that processing a billing already converted to U.S. dollars adds absolutely nothing to a bank’s operating cost; the fee is pure gouge. And travelers hate pure gouges. But with many cards, you will be gouged unless you have a no-fee card.

RELATED: 9 Dirty Little Secrets of the Travel Industry

Cash Withdrawal Fees

Some credit card issuers boast that you can use your card to get cash from an ATM when you’re traveling. What they don’t tell you is that using a credit card is a terrible way to get cash. surveyed 100 top cards earlier this year and found that taking a cash advance entails a fee, typically around three to five percent with a $10 minimum, plus an ATM charge unless you’re using one from your own bank, plus a stiff interest rate with a median value of 24 percent even if your account is fully paid. All in all, you don’t want to use a credit card for cash unless you have no alternative.

Credit Card Rental Car Insurance May Not Cover You Completely

Because of the natural fit of credit cards with travel, some card issuers have included no-fee coverage for collision damage to a rented car as a basic card benefit. If you use the card to reserve and pay for a rental, the credit card issuer will provide secondary collision coverage. That means, in theory, that you can avoid paying the rental company’s gouge fees for “collision damage or loss waiver” (CDW) that they try to sell you at gouge prices. CDW can easily cost as much as $30 a day, and avoiding it is a great credit card plus.

But, again, the rental car folks won’t give up on the highly profitable CDW without a fight. As a result, your credit card coverage may not be as good as you think. Rental car coverage is universal with Visa and AmEx, but for some reason, MasterCard concluded that CDW coverage was not a “core” consumer benefit. Thus, whether your MasterCard includes rental coverage depends on the issuing bank: Some do, some don’t. Ditto Discover.

Also, rental companies have regularly added fees and charges to damage claims, and some credit cards don’t cover all of them.

RELATED: Ouch! Hidden Car Rental Gouges and How to Avoid Them

User Fees

Outside the U.S., you’re likely to encounter user fees of two to five percent to pay a bill with a credit or debit card. You don’t see much of that locally yet, but recent legal cases give U.S. merchants the ability to ignore contracts requiring them not to add fees.

On a recent trip to New Zealand, I encountered it with local airlines and some hotels and restaurants. Although many U.S. companies say that adding a fee to credit card transactions is not consumer-friendly, don’t be surprised to see more and more such fees in your future.

The Former ‘Best’ Foreign ATM Deal Is Gone

For several years, consumer advocates touted the “Global ATM Alliance” as the ideal way to get foreign currency. If you had a Bank of America checking or savings account, you could use a debit card to withdraw local currency with neither an ATM nor a conversion fee from ATMs at affiliated banks in Australia, Canada, China, France, Germany, Italy, Mexico, New Zealand, and the U.K. You could actually exchange currency at the rates the banks use.

But banks really hate to see consumers get good deals. So they changed the rules: Withdrawals from Global ATM Alliance banks now get hit with a three percent exchange fee.

RELATED: 7 More Dirty Little Secrets of the Travel Industry

Airport ‘No Fee’ ATM Gouges

Until a few years ago, several big local banks provided ATMs in the arrivals areas of international gateway airports. Yes, you had to pay some fees, but the deals were relatively honest. Recently, however, foreign exchange outfits such as Travelex have been negotiating exclusive ATM arrangements with big hub airports—presumably for a share of the take—and installing their own ATMs.

Those ATMs typically blare “no “fees” prominently, and it’s true, they do not assess withdrawal fees. Instead, they sock you with a really lousy exchange rate, often as much as 10 percent worse than you would get with a big-bank ATM. In effect, you get about the same rate as if you exchanged currency at the notoriously gouging retail exchange counter.

You May Need a Chip Card

Travel writers are fond of warning you that your old-fashioned magnetic stripe card may not be accepted outside the U.S. Instead, they say, you need a “chip-and-pin card” that contains your data in an embedded chip rather than a magnetic stripe and requires you to enter a PIN rather than sign. Most of the developed world has adopted that system, but not yet the good old U.S. of A.

Although banks had established an October 31, 2015, date for conversion of U.S. cards to a chip system, current compliance is under 50 percent. Moreover, most chip cards that U.S. banks issue are chip-and-sign, rather than chip-and-pin. So they’re still not fully compatible.

Fortunately, those warnings are a bit overhyped: In my most recent overseas trips, almost all airlines, rental car companies, hotels, restaurants, merchants, and gas stations easily coped with the old-fashioned cards, including magnetic-stripe cards, along with chip-and-sign cards.

The only time I couldn’t use my chip-and-sign Visa card was at an unattended gas pump in an area where the nearest gas station was about 50 miles away. (Mount Cook is pretty remote.) Even though the problem is overstated, however, you will still encounter a few cases where neither your old magnetic stripe card nor even your chip card will work. Plan for it.

RELATED: 10 Dirty Little Secrets of Frequent Flyer Programs

Chip-and-Sign May Not Solve Fraud

While on the subject of chip cards, consider the fact that although chip cards can reduce some kinds of fraud, they aren’t fraud proof. A substantial portion of credit card fraud originates with “card not present” transactions, such as when you buy an airline ticket or arrange a hotel or rental car online. As long as a crook can get your data, for example by hacking into a merchant account, that chip won’t help you at all.

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Consumer advocate Ed Perkins has been writing about travel for more than three decades. The founding editor of the Consumer Reports Travel Letter, he continues to inform travelers and fight consumer abuses every day at SmarterTravel.

(Photo: Woman shopping via Shutterstock)

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