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When to Use Cash or Credit

Determining the optimal way to handle financial transactions is an important part of saving money when living or traveling overseas.

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The diversity of landscapes, cultures and cuisines is one of the best things about living in or visiting other countries. Dealing with new and often confusing currencies and financial systems isn't quite so attractive, however.

One of the most fundamental financial questions for travelers and expats is when to use cash or credit. To help better illustrate this decision, let's take a closer look at the pros and cons of each approach.

Cash vs. credit

One of the best things about cash -- especially in a travel setting where you'll be making a lot of small daily transactions -- is its flexibility. Cash is fast, easy and vendors love it because they don't have to pay credit card companies a processing fee. Because of these fees, many small vendors, restaurants and retailers across the globe will not accept anything other than cash. Cash is universal; accepted almost everywhere.

For U.S. residents, cash is a particularly useful option, as American currency is widely accepted across the globe. This means you can avoid exchanging your dollars for local currency, something that can reduce your spending power.

If you're going to use cash, however, you should be cognizant of the security risk that comes with carrying large quantities of bills. Additionally ATM fees can quickly add up, so it's important to find banks that offer low-cost withdrawals.

While cash is a great choice for buying coffee, meals, paying for attractions or other smaller purchases, other situations call for the use of a credit card. Before you make any purchases, however, it's essential to determine if your credit card has international transaction fees. These fees can be as high as four-percent, which can add up to significant money on larger purchases.

Cards without international fees are great for doing things such as booking hotel rooms or plane tickets. Many credit cards also have travel rewards programs that allow you to earn cash back or qualify for travel-related perks, making them a natural choice for larger purchases. It should also be noted, however, that not all cards are accepted everywhere. 

You should also make sure to call your credit card company before departing, as failure to do so may lead to your account being temporarily suspended. It's also a good idea to be careful with your card information when traveling.

Overseas merchants will also sometimes offer something called dynamic currency conversion, which switches the charge on your credit card from your domestic currency to the currency of the nation you're currently in. You should decline this offer, as these conversion rates are typically less favorable to you.

The Takeaway

Determining the optimal way to handle financial transactions is an important part of saving money when living or traveling overseas. Follow the advice outlined above and you'll know exactly how to handle each transaction.