Planning an international trip? Confused about whether you should use a debit card or credit card? Debit cards deduct money directly from your bank account, helping you stay within budget, while credit cards offer an interest-free period for repayments and can provide extra funds if needed. Both types of cards incur fees. Credit card cash withdrawals are costly due to high fees and interest, making debit cards a better option for ATM withdrawals. Credit cards are generally safer for international use, as fraud exposure is limited to your credit limit, whereas a compromised debit card can lead to an immediate loss of funds.
Planning an international trip involves a lot of preparation, from booking flights and creating itineraries to deciding where to shop and eat. One of the most important decisions, however, is how you’ll manage your spending.
Debit vs. Credit Card Abroad: Choosing Based on Your Spending Needs
Using a debit card means spending directly from your bank account. When you swipe a debit card abroad, the amount is immediately deducted from your account balance, making it easier to keep track of your spending. A debit card is a good option if you want to avoid overspending and prefer to stay within your budget.
On the other hand, credit cards are helpful if you need extra funds while traveling. With a credit card, you get an interest-free period of 45-50 days to repay the amount. However, you should avoid overspending on your credit cards for unplanned purchases.
Fees to Consider: Markup Fee, Forex Charges, and More
Both debit and credit cards incur certain fees when used abroad. One of the main charges is the markup fee, which is a percentage added to the value of each transaction. Typically, a dynamic currency markup fee of around 1% is applied on both debit and credit cards.
There are also zero-markup debit and credit cards available, but it’s important to note that these apply to rates provided by payment networks or partner banks, not interbank rates. Network rates often carry a 1% premium over interbank rates.
Additionally, when you make a payment abroad, the transaction is usually in a foreign currency. The card issuer converts the amount into your home currency, typically charging a forex conversion fee of up to 3.5% per transaction.
Withdrawing Money from ATMs Abroad: Debit Card vs. Credit Card
If you need to withdraw cash from an ATM abroad, using a credit card will incur several fees, including a foreign currency transaction fee, a cash advance fee (up to 3.5%), and interest charges (up to 42% per annum on revolving credit).
In contrast, withdrawing cash with a debit card comes with a flat withdrawal fee, usually between Rs 125 and Rs 150 per transaction, which is significantly lower than the fees associated with credit card withdrawals. Therefore, if you need cash and have funds in your bank account, using a debit card is the more cost-effective option.
Protecting Yourself from Fraud: Debit Card vs. Credit Card
When you use a credit card abroad, your bank balance is not directly exposed, meaning that in the case of fraud, the potential loss is limited to the card’s credit limit. If a scam occurs, you can block your credit card and rely on your debit card as a backup.
In contrast, if a scamster accesses your debit card, they could drain your entire bank account. Fraudsters can clone your debit card and empty your savings, making debit cards riskier in unfamiliar locations. The impact of debit card theft or misuse is more immediate and severe, as it is directly linked to your bank account. Blocking your debit card in an emergency would also restrict access to your account balance.
For this reason, it’s generally safer to use a credit card at smaller, local establishments during your travels.
TCS on Debit and Credit Cards: What You Need to Know
As of October 1, 2023, a TCS of 20% applies to remittances exceeding Rs 7 lakh in a financial year, except for specific exemptions. There is no TCS on debit card spending up to Rs 7 lakh per year, and international credit cards are exempt from the Liberalised Remittance Scheme (LRS), so no TCS is levied on credit card transactions. It’s important to note that TCS is not an additional tax; it can be adjusted against your tax liability when filing your income tax return (ITR).
When traveling abroad, carefully assess the fees and charges associated with debit and credit card use. Weigh the benefits of using each card based on your spending needs, safety considerations, and overall financial requirements. Carry both cards for flexibility and to handle any issues, such as transaction limits or security concerns. By being prepared, you can manage your finances efficiently and enjoy a stress-free trip.
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