Credit cards can be super risky. There are hidden traps, high interest rates and lock-in contracts that you can’t get out of. However, I can’t deny that they come in extremely handy when you are travelling – especially internationally. If you’re very smart about it, always think about what you’re spending on it and don’t think about a credit card as “free money” you can definitely take advantage of getting a credit card for your travels. Here’s a quick guide to not getting trapped by a travel credit card.
Why do you need one?
Of course, this should be your first question to me. You have been saving for your travels for ages and are sitting on quite a nice little nest egg to get you through your trip. But there is one thing (in my opinion) that can always trip up your budget and make you completely lose track of how much money you have – HOTEL DEPOSITS. It’s so easy to forget about, but depending on the nature of your holiday, they are something that can make a massive difference. When you check into a hotel/motel/hostel they often need to ‘hold’ a certain amount of money – usually a couple of hundred dollars – as a bond or deposit, which gets released when you check out.
When you put this charge on a credit card the hotel does just that – the funds get held and then when you check out they are immediately released. When you use a debit card the funds will still be held, but when they are released it can take 7-10 business days for the money to come back into your account (and up to 35 business days in a horrific worst case scenario that we had). If you’re checking into a different accommodation every few days and using a debit card for the bond, this could easily rack up to hundreds if not thousands of dollars being held up in limbo that you can’t use and need to keep track of. I don’t know about you, but I don’t really have that money to spare in limbo for a couple of weeks.
Additionally, most rental car companies will not accept a debit card and only take credit cards for bonds or even just to have on file. Giving them your credit card just acts as security (you know, just in case you decide to take off and not return the car). If you find a company who does accept your debit card, you will find yourself in a similar situation to the hotels – the whole amount of the bond will be taken from you and then will take several days to come back to you. For rental cars this is often thousands of dollars with a debit card to cover the excess in the case of an accident.
Why should you avoid one?
If you have a difficult time sticking to a budget or controlling your spending, a credit card might not be a good idea. Credit cards have some of the highest interest rates ever, often upwards of 18-20%. If you do not pay your bill in full by the time it’s due you could easily start wasting hundreds of dollars in interest, and what was originally a $900 bill can turn into a $3000 bill in a matter of months. If you don’t have the money saved to pay the bill by the due date it’s just not worth it. I avoid paying interest at all costs, it’s just not worth giving money away like that.
How to take advantage of it
Many credit cards these days offer some kinds of rewards program. It’s a great idea to choose a card that will benefit you in some way. For example, we signed up to a credit card that were offering a huge amount of frequent flyer points upon signing up if you spent a certain amount of money within the first three months. This was a HUGE benefit to us. In the lead up to our wedding, we were already going to spend the required amount of money within the time frame, which means we weren’t going to be putting ourselves into unnecessary debt we hadn’t budgeted for, so we just paid some extra things on our credit card and then transferred our money straight over from savings. Great way to top up your frequent flyer points and potentially get yourself some free flights! You can also find similar programs around for Velocity Miles or even just general rewards points with the bank which you can then redeem at their online store for all sorts of things.
Research all your options
I know we all normally just rush through the terms and conditions when we’re signing up to things, but with credit cards it’s important to read them all and take note of what they are saying. Make sure you compare the difference in annual credit card fees, whether or not you can have a secondary card holder, how many points you will accumulate per dollar spent, what type of cards are on offer (Visa, MasterCard or American Express) and if there are any other hidden rules and requirements attached to the card. A great website to do this is finder.com.au – which compares all the different credit cards on offer as well as comparing every single detail that you might need to know.
Why we chose to get a credit card and how we use it
As I mentioned before, the number one reason we chose to gt a credit card was to use for hotel and rental car deposits, as we didn’t want to be up to a couple of thousand dollars out of pocket by putting these charges on our debit cards. Over time though, and since we moved into our own house, the way we used our credit cards has definitely changed, but one thing always remains the same. We NEVER spend more than we can afford and we ALWAYS pay the bill before it is due so that we don’t accumulate any interest. If you stick to doing that, you won’t find yourself in the black hole of credit interest that many people do. One other important thing to remember is to spend on your credit card as if it was your debit card. If those shoes or that flight would be too expensive for your savings and you couldn’t justify paying for it, you shouldn’t put it on your credit card. Be responsible and careful about what you’re paying for on your card.
At the end of the day, having a credit card can be as helpful or detrimental as you make it. As long as you keep on top of it and use it responsibly it can be a great relief to have a credit card with you on your travels, especially in the case of emergencies!
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