10 biggest mistakes to avoid

Travel is expensive enough at the moment without increasing costs with poor financial decisions on your vacation money. Yet we fall into the same old traps year after year. We take out too much cash and pay too much for it. We use the wrong credit and debit cards, and get our calculations wrong when trying to figure out how much things really cost. Sometimes we even fail to claim the substantial refunds to which we are entitled.

To help you avoid the pitfalls, we’ve put together a guide to the most important mistakes to avoid. Even though the amounts saved may seem relatively small with each purchase, in a few weeks of vacation, they can quickly add up.

1. Buy currency at the airport

You’ll almost always pay a premium on the exchange rate at an airport money changer – unless you order online in advance. And in any case, in many countries you simply don’t need cash on arrival anymore. I no longer travel with any paper money. It is true that in some countries cash still dominates – for example, in Malta 88% of payments are still made in cash, and in Spain and Cyprus this figure is around 84%. But you can normally still use your card and in places like Finland and the Netherlands most transactions are now done this way. If you think you want to take tickets with you, it’s best to pre-order them from your bank or, even better, just use your debit card at a vending machine when you arrive at your destination (see point six below).

2. Withdraw money with a credit card

Even if you pay off your balance each month, you’ll still have to pay an additional charge for a cash advance on a credit card (either a percentage of the amount — often two percent — or a flat fee). And, unlike the usual rules that apply to purchases made directly with the card, you will normally also pay interest on the amount withdrawn in cash from the day you make the withdrawal until the date it is refunded. Much, much better to make your purchase directly with the card – it will not only be cheaper, but also give you more legal protection.

3. Use a credit card already in debt

Not everyone is lucky enough to be able to pay off their credit card balance every month. If you’re one of those who don’t, using it on your vacation will be a very expensive way to pay for things. You are increasing your debt and almost certainly paying a very high interest rate each month. If you need to borrow money for a vacation, there are much cheaper ways to do it, especially, for example, if you have a flexible mortgage that allows you to easily withdraw or repay.

4. Choosing the wrong rate

It is increasingly common for shops, restaurants and ATMs abroad to offer the option of making a payment that has already been converted into sterling, as an alternative to the amount displayed in the local currency. Selecting the pre-converted rate will almost certainly cost you more. I have checked the comparison several times over the years and this option has always been more expensive. Always choose the local currency.

5. Fail the math test

The euro and the dollar are quite simple at the moment – since they are each worth around £1. But many countries require a much more complicated calculation and if you can’t easily convert a currency in your head, you’re much more likely to be overcharged. Avoid this with a currency converter app or your phone’s calculator. In countries with a high exchange rate for the pound, pay particular attention to extra zeros surreptitiously added to bills.

6. Choosing the wrong card issuer

The amount that different banks and other card issuers charge for overseas transactions varies greatly. Banks can extract money from you in different ways, including transaction fees (which can be 1.5-2%) and charging the exchange rate against you up to 3%. So you could easily lose four or five percent every time you pay something. I avoid this by using a Monzo card (monzo.com), which incurs no such charge (although you do have to pay extra if you withdraw more than £200 per month from ATMs abroad). It simply passes on the current Mastercard exchange rate, which has a markup of just 0.33% above the European Central Bank rate. This is not the only card to offer such an offer. For use abroad, which one? also recommends debit cards issued by Starling Bank, Cumberland Building Society, Virgin Money and Chase. It also highlights a handful of good-value credit cards that offer similar rates, including the Halifax Clarity card, the Virgin Money Travel credit card and the Barclaycard Rewards credit card (see point three above).

7. Losing money on a closed currency

A closed currency is a currency that can (normally) only be purchased in the country where it is issued. So you need to change your money (or better yet, use an ATM) when you arrive, rather than before you get there. The biggest mistake is changing too much and forgetting to change it to British pounds before leaving the country. First, you probably won’t be able to change it in the UK and second, it’s almost always illegal to export it, so – at least in theory – you’ll be breaking the law if you take it out of the country with you. Here is an example of FDCO advice for Tunisia: “It is strictly forbidden to take Tunisian dinars out of the country. To exchange any remaining Tunisian Dinars at the end of your stay into British Pounds or another hard currency, you will need to show the receipt from the bank where you first withdrew the Dinars. Other countries with closed currencies include Sri Lanka, Cuba, Morocco and India.

8. Skip unofficial rates

In countries with closed or weak currencies, the Pound, Euro or US Dollar can also be so sought after that you can get a much better exchange rate on the black market. Obviously, dealing in this way can be risky both legally and due to a high risk of getting scammed. But in some countries, a parallel system for tourists operates semi-officially or even officially. If you don’t take advantage of it, you will lose. A good example is Argentina, where there is a black market rate for the US dollar called “Dolar Blue” and it is currently almost double the official rate. This summer, the Argentine government introduced a program that now allows tourists to exchange up to US$5,000 per person at a rate close to Dolar Blue.

9. Neglecting to claim VAT

Many countries allow tourists to reclaim VAT on goods they have purchased during their visit and the rewards can be attractive – usually a refund of up to 20% of the purchase price (although often a fee administrative costs are deducted). There will be hoops to jump through. You will need a receipt and you will need to make a claim – often at the airport when leaving the country. Systems vary from country to country and you will need to check your destination details. The rules for using the system when visiting the EU are here.

10. Arrive unprepared

Because they don’t know local costs and prices, travelers are always vulnerable to overcharges. Ironically, you’re probably more likely to overpay in countries where services are cheap rather than expensive: a price you’re offered may seem reasonable, but in local terms it’s a scam. Researching what things should cost will minimize risk. Take taxi fares – find out the typical (or often fixed) cost of a trip from the airport to the city center for example, if it is a legal requirement to use a meter. If you cannot find reliable advice online, a hotel concierge is normally a reliable source of advice.

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