By MELANIE LOCKERT
You're about to embark on a trip of a lifetime and study abroad in another country. Why not, right? According to a report by the Bureau of Educational and Cultural Affairs, study abroad by U.S. students increased 5 percent in the 2013-2014 school year, which represents the highest growth since before 2008.
Studying abroad, especially in the UK and other parts of Europe, is increasing in popularity, but there are many things to consider before setting foot on the plane -- including your finances. How will you pay for purchases? A credit card can be a useful tool, but which one should you choose? Read on to find out why getting a credit card for your study abroad may be a good idea and how you can find the right option for you.
Why a credit card?
Cash is still king across a lot of the world, but carrying a lot of cash while studying abroad can be dangerous.
Pickpocketing is a common crime, and tourists/foreigners can be easy targets. Also, it can be hard to track your spending with cash. Perhaps worst of all, if you lose your cash, you're out of luck. On the other hand, if you misplace your credit card or it gets in the wrong hands, you should be able to get it replaced and may have certain fraud protections. To get the benefit of these protections, you should notify the credit card issuer as soon as possible if your card is lost or stolen.
In addition to being useful, responsibly using a credit card by paying your balance on time and in full and keeping your balances low can help boost your credit. But which credit card should you choose?
Look for a card with no foreign transaction fees.
When studying abroad, you'll be paying for things in the local currency. If you're studying in Italy, for example, you'll pay for things with the euro rather than the U.S. dollar.
This can complicate things when it comes to credit cards. If you make a purchase using your credit card while abroad and charge it in local currency, your credit card issuer could hit you with a foreign transaction fee of 1 to 3 percent of the sale. So if you spend $100 on a weekend trip, you could pay a couple of bucks in fees.
To avoid this, Jim Wang, founder of personal finance blog Wallethacks.com, says, "I'd get a no foreign transaction fee card so you can use it abroad and not get dinged the fee each time."
One good option for students looking to study abroad may be a Capital One credit card. Jenna Rogers, a Certified Financial Planner™ at Mission Wealth always recommends to parents that if their kid is studying abroad, a credit card with no foreign transaction fee is the way to go. "Capital One doesn't charge foreign transaction fees, and they have cards specifically geared toward students, such as the Journey® Student Rewards from Capital One®. Added bonus: It has no annual fee."
What else should you consider?
Choosing a credit card with no foreign transaction fees may be your number one priority when studying abroad. However, here are some other factors you may want to look into before choosing a credit card:
- What is the APR?
- Is there an annual fee?
- What will be your credit limit?
- Does the card offer any rewards, such as miles or cash back?
- What kind of penalties are there, such as late fees?
It's key to read the fine print and understand any potential fees, penalties and interest rates before you apply. In addition, keep in mind that credit cards with no foreign transaction fees typically require good to excellent credit, and depending on the card, may have an annual fee.
What if you can't get approved for a credit card?
Under the Credit Card Accountability Responsibility and Disclosure Act of 2009 (aka the CARD Act), anyone under 21 years of age must demonstrate that they're financially able to make payments on their own, or have a co-signer who is at least 21 and financially capable of making payments. Because of this, it may be hard for students under 21 to get approved for a credit card. Luckily, there are some other options out there.
"As a student, it might be challenging to get a credit card on your own, so you can have your parents apply for one and add you as an authorized user. This can also be useful in building your credit," says Wang.
Another option is getting a prepaid card, which can help you budget, as it only allows you to load and spend money you have. Brad Fauss, president and CEO of Network Branded Prepaid Card Association, says, "For students who may not have the credit history necessary to obtain a credit card, general purpose reloadable prepaid cards are an alternative solution. They are convenient -- allowing users to make swipe transactions, rent hotel rooms and perform other functions that you can't do with cash."
There are, however, a few downsides to using prepaid cards, including:
- They won't help you build credit.
- They may come with fees, such as foreign transaction fees and fees to reload your card.
- Some prepaid cards don't offer protection in the event of loss or theft - however, some branded cards may offer this protection.
It's key to check the fine print and understand what fees are associated with the prepaid card.
Money tips for studying abroad
After getting a card, be sure to let your credit card issuer and bank know you'll be traveling abroad. An international charge could trigger a freeze on your cards, so giving the issuer advance notice might help prevent that from happening.
In addition, learn about what kind of currency is available in the country you'll be studying in, and research the exchange rate. How far will your dollars go? The exchange rate could have an impact on your budget. For example, at this time, $500 equates to around 447 euros.
Studying abroad can be a life-changing experience you'll never forget. But before your trip, you'll want to financially prepare and choose the right credit card for your journey. Using these tips, you may be able to find a card that works for you and makes your trip more convenient.
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