The M*ney One [Part Five]: Using Credit Cards Abroad

If you haven't checked out my last post, you can read that here, and if you haven't read the last part of "The M*ney One," then you can read it here. You can also see the Ultimate List of Resources here.

   Unfortunately, parents, this won't be a story you can show your kids to deter them from getting a credit card. Either admit you raised an irresponsible kid or that you're intimated by the idea of your child having any financial independence from of you. Are you done? Good, let's move on. I have to admit, I'm a little scared of credit cards. After signing up for my very first solo credit card, the Capital One Journey Student card, shortly before my 19th birthday, I felt like I had so much spending power, and I did. No annual fee. Points back. Personalized payment due date. For travelers, no international transaction fees, 24/7 travel assistance, and automatic travel insurance when you use the card to buy your fare. Don't get me wrong, the annual percentage rate (APR) is insane, but when you pay your card in full every month, it doesn't matter.

Let's Address Some Stuff

   I think it is crucial to address a particular myth about credit card usage. You do not have to carry a balance on your card, however, you should not pay balances the second they show up online. For example, if I spend $10.07 at Arby's, the transaction may show up in my Capital One app the same day, but I should wait until the full billing cycle and then pay for all my transactions in full. This way, I have displayed utilization to the credit bureaus and I don't get charged any interest. When you pay your card off as you go, you don't get charged any interest, but you also have 0% credit utilization for that month. The percentage of your available credit that you use, your credit utilization, is calculated when your billing cycle is up, so the key is to pay between the time your statement is available and when interest is calculated. Credit utilization makes up about 30% of your credit score and you should be using around 30% of your available credit total across all cards. If what I said made absolutely no sense to you, you can check out this article by NerdWallet that addresses the myth and this one from The Balance that addresses how credit utilization contributes to your credit score.
   Learning how to negotiate with your credit lender can get you lower rates and higher limits. As I've previously mentioned, using around 30% of your credit limit across all of your cards is an important part of your credit score. Even if you get a small credit limit raise, your available credit will increase, thereby allowing you to spend (and pay off in full) more credit to stay within the 30% range. 30% of $1000 and $2500 is still big enough to make a difference in your everyday available spending power. Even if you don't plan on increasing your actual spending at all, requesting a credit limit increase on just one card is a great way to boost your credit score. My Capital One Journey Card automatically increased my credit limit after 6 months and then a year. You also don't have to accept the interest rates you're given. If you have been paying on time for years on a certain card and you've had the same rates, consider calling your credit lender and using that information as leverage. You'd be surprised at how much they're willing to budge on your APR and how much difference 1-2% makes. There are scripts for exactly what you can say to a credit lender to get them to lower your interest rates. Taking the time out to call your credit lender to negotiate both your credit limit and your interest rates is super important to do before you go abroad.
  Okay, two more things. Credit scores and credit reports are very different. Your credit score is a three-digit number (I hope) that describes your creditworthiness. There are five components that go into your credit score: payment history, credit utilization, length of credit history, new credit, and types of credit/credit mix. Your credit report is a history of each lender with whom you have been in an agreement, the amounts, and of course the time. Credit scores are assigned to credit reports, like grades, from each of the major credit bureaus, Equifax, Experian, and TransUnion. You are also entitled to receive credit reports from the three major credit bureaus once a year so I would suggest you do that before you take off.

Okay, now that we know some basics about the credit cards, let's get to how to actually use credit cards while you're abroad.

Emergency Funds
   
   More often than not, emergencies, not reckless spending, are what get folks into serious credit card debt. This is where emergency funds are important. If you are just starting to prioritize your financial health, an emergency fund, not your credit card debt, is where you need to start. I know it's scary, but put your credit card debt on hold until you have 6 months to 1 year's worth of income saved, and then start chipping away at the debt. Imagine you pay off all of your credit card debt only to have your car engine need reconstructing and you have no savings. You're going to have to either use credit cards to pay for the replacement or use that new creditworthiness for a new car adding a new monthly expense. Tighten that budget, I mean really tighten it, and create your emergency fund. Further, try an online-only bank with interest rates higher than 0.01% that is separate from your main checking account so you can't regularly transfer your savings for impulse buys. Once you've created that emergency fund, you can use those already allocated funds for attacking the debt using the snowball method. Then, when emergency knocks, you won't be ruined and you'll have more spending power available to you. Most people are just one emergency away from financial ruin. Don't let that be you.

Flights & Hotels

   Charging $1200 to your credit card for your flights or accommodations abroad can be terrifying, however, the pros to using a travel-friendly card plus some of those saving skills I've talked about here can make it worth it. Charging a flight or hotel to a travel card or other credit card with points or perks is one of the biggest tips for traveling with credit cards. Essentially, save for your flight, and then once you have the money, charge it to your *travel-friendly* credit card. Then, pay it off before you're charged interest and after your points are evaluated. Often credit cards have special benefits such as free travel insurance, extra bags for free, or increased cash back if you use their card to pay for hotels, flights, or even hostels. Taking advantage of these perks in a smart way can help reduce your overall costs for your flights and when you pay it all off, shows responsible credit usage.
   If you don't have the savings skills to use this method, make sure that your abroad budget includes a generous amount for your credit card debt, something that one needs to be diligent in devoting themselves to.





Everyday Purchases
   
   I'm fortunate enough where I will be receiving a stipend while abroad from the Korean government. I plan on still working on the side hustles I mentioned here and tutoring in English, however, the bulk of my consistent income will be the monthly cash stipend. Using my credit card for everyday purchases makes sure that I get consistent points, a great exchange rate, and show credit utilization while abroad. Opening a Korean bank account, which I will discuss soon, then paying the amount I've charged to my card in full is a great way to show responsible credit usage while not going over my budget and making the best out of my stipend.
   The same goes for those who will be doing freelance work or getting money from their parents. Have them transfer it to your Korean bank account so you can pay your credit card or have them pay your credit card bill directly. Make sure you pay it in full everytime you get a chance and always more than the minimum amount to prevent serious debt.


   So, you've got an emergency fund, understand the idea of credit utilization, and you've negotiates the terms? Congrats! If you haven't that's okay too. Financial growth is ever changing and so are our financial circumstances and overall health. All in all credit cards are super useful tools that when used correctly, can help build your credit, increase your spending power, and boost your financial confidence. Especially when abroad, credit cards can actually reduce your spending when purchases are planned and paid off in a timely manner.

Good Luck
Myaia
 *I do not endorse Capital One or the Capital One Journey Card nor am I affiliated with Capital One or the Capital One Journey Card. I just gave my experiences as I experience them for the purposes of this article

Thumbnail Photo by Ryan Born on Unsplash