A credit card can be very handy when you’re overseas or if you want to buy something online from a foreign website.  However, you do need to watch out for foreign transaction fees.

Whenever you purchase an item in another country, your credit card provider will charge you a foreign transaction fee to cover their costs in converting the foreign currency to Australian dollars.

This fee is typically 1-3 percent of the purchase price, depending on your particular credit card.

The fee may seem very low, but if you bought something that cost $1,000 when converted into Australian currency and your bank charges you a 2 percent foreign transaction fee, that item you purchased will end up costing you $20 extra!

And it’s even worse if you get out a cash advance while in a foreign country.  Not only are you charged the normal cash advance interest rate from the date you take out the cash advance, but you’re also charged anything from $1-10 extra on that transaction.

So what can you do to minimise the foreign transaction fees on your credit card?

Well, if you’re travelling overseas, first of all find out how much you’ll be charged for a foreign currency conversion when you purchase something over there.  If you think the percentage rate is too high, then start shopping around for another credit card before you leave home.

If you browse the credit card market place a few months before your departure, you should be able to find a credit card that will meet your overseas transaction needs.  You’ll still have to pay a foreign currency conversion fee, but at least you’ll know that you’re paying the lowest percentage rate possible on foreign purchases.

If you regularly buy items from overseas, for example through a foreign website, make sure you take the foreign transaction fee into account when making your purchase so you won’t receive an unpleasant surprise when you open your next credit card statement.

One way to avoid paying the foreign transaction fee is to purchase all your items in Australia.  However, you may not be able to find the item you wish to purchase or it may be more expensive purchasing it in Australia than buying it overseas, even when you take the foreign transaction fee into account.

For instance, books can be expensive in Australia compared to the prices in the U.K. and U.S.A.  Often, you can save quite a lot of money by purchasing your books from an online U.K or U.S.A. bookstore, even taking foreign transaction fees into account.

As you can see, if you use your credit card for overseas transactions, you need to be aware of those foreign transaction fees.  But if you can find the time to shop around to get the lowest percentage rate possible on overseas purchases and use your card wisely, you’ll find that you won’t be too out of pocket after all.  And that’s a great goal to aim for when you use your credit card.