Should you use debit or credit cards on foreign trip?

You’re going to Singapore with your family. You get a little confused. The confusion is whether to use a debit card or a credit card during the trip. Planning for a foreign trip is not an easy task. Things like booking tickets, places to visit, which hotel to stay in, etc., all these things need to be decided in advance. Then comes another significant decision, which is related to expenses.

People who often travel abroad face the dilemma whether to use a debit card or a credit card to avoid overspending. Using a debit card is considered right to avoid overspending, or should one use a credit card? A credit card helps in avoiding TCS i.e. (Tax Collected at Source). The question also arises about what charges would you incur when you use a debit or credit card abroad.

When planning a foreign trip, questions like these may come to your mind. Let’s find out how should you plan your international trip:

The first thing to keep in mind is that spending with a debit card means the money will be deducted immediately from your bank account. So, if you want to put a check on your expenses that you would incur abroad, a debit card is the right option. On the other hand, a credit card proves helpful when you have less cash in hand or funds in your account during your international travels. In addition to this, a credit card provides an interest-free period of 45 to 50 days, allowing you to pay the bill later.

Now, let’s talk about different types of charges. Both debit and credit cards incur a markup fee on every expense made abroad, this is usually 1% of the transaction value. This means a transaction of 1,000 rupees will incur a markup fee of 10 rupees.

Outside India, payments through debit or credit cards are mostly made in foreign currency. The value of transactions made by the card is converted into the currency of that country. For each transaction, a forex conversion fee is applied, which is usually up to 3.5%.

You incur not only interest charges but also foreign currency transaction fees, withdrawal fees, or cash advance fees, if you use a credit card abroad for cash withdrawal from ATMs. A cash advance fee of up to 3.5%, an annual interest charge of 42% on revolving credit, or a monthly interest charge of up to 3.5% is levied on spends abroad.

Similarly, withdrawing money from ATMs through a debit card incurs a flat withdrawal fee. This is significantly lower than the cash withdrawal fee typically charged on credit cards. A flat withdrawal fee of usually 125 to 150 rupees is levied on each transaction.

Therefore, it is clear that if you need immediate cash. If have funds in your bank account, then, you should use a debit card for withdrawal from ATMs. Avoid using a credit card for cash withdrawal.

In terms of TCS, a new rule has been implemented from October 2023. Individuals will have to pay TCS if they spend more than 7 lakh rupees in a financial year. No TCS will be levied for spending up to 7 lakh rupees in a single financial year using a debit card. Additionally, there is no TCS on international credit cards. It has been kept outside the Liberalised Remittance Scheme (LRS).

When spending abroad, calculate and check the additional charges for your debit or credit card. Only after that, you should decide which card to use.