The key differences between using a credit vs. debit card abroad

Should you use your debit or credit card abroad?

At home or abroad, debit and credit cards work in different ways. Understanding their benefits and disadvantages can help in making the right choice for travel.

How debit cards work:

• Role. Withdraw funds directly from a linked bank account, making it easy to manage daily expenses.

• Advantages. Helps avoid debt, as spending is limited to available funds. Ideal for budgeting and keeping track of small purchases.

• Considerations. Limited fraud protection compared to credit cards, and potential fees for foreign transactions and ATM withdrawals.

How credit cards work:

• Role. Allows borrowing up to a certain limit, with repayment expected later. Often includes additional benefits like purchase protection.

• Advantages. Offers robust fraud protection and perks like travel insurance and rewards. Better suited for larger purchases due to security features.

• Considerations. Risk of building up interest if not paid off promptly. Foreign transaction fees may apply.

When choosing which card to use abroad, it's important to look at fees, exchange rates, and security measures.

Fees

Fees are one of the biggest considerations when choosing between using credit and debit cards abroad. Here are some things to consider:

• Foreign transaction fees. Credit cards may charge up to a 3% transaction fee per international purchases.¹

• ATM withdrawal fees. Debit cards usually charge a fee for withdrawing cash abroad. Credit card fees can accompany cash withdrawals, which are seen as cash advances that typically come with high fees and immediate interest.

• Interest rates. With credit cards, interest applies if balances aren’t paid off quickly. Debit cards draw money directly from a bank account, so no interest is charged.

Compare these fees to PayPal fees for making transactions abroad.

Exchange rates

Credit cards often offer better exchange rates than debit cards do. Banks tend to tack on hidden fees with debit card transactions, while credit cards generally use the more favorable exchange rates from card networks like Visa or Mastercard.

Security and fraud protection

Security is a major consideration when buying abroad. Both debit and credit cards come with fraud protection, but credit cards offer more robust coverage. Here's more on each:

• Credit cards. Most offer zero-liability policies and can help with disputed charges.

• Debit cards. Fraudulent transactions on a debit card could result in a bank account being emptied, and recovering funds might take longer.

It's important to notify the bank before travelling abroad to avoid any security holds.

Read this guide to learn how PayPal security works.

Purchase protection

For big-ticket items, credit cards are one option because of Section 75 protection.² If something goes wrong with a purchase over £100 when buying abroad, the credit card company is jointly liable with the retailer. Debit cards usually don’t offer this level of protection but may allow international chargebacks in some cases.

This credit card protection can be vital while travelling, ensuring coverage for purchases, accommodations, or excursions that don’t go as planned.

Perks

Credit cards tend to offer better benefits, such as travel-related perks, than debit cards do, and many allow users to pay with rewards. Perks may include:

• Air miles. Rack up points with every purchase.

• Cash back as point redemption. Earn money back on purchases.

• Travel insurance. Get protection for flights, lost luggage, and cancellations.

Debit cards, while convenient, rarely offer these kinds of rewards.

Paying abroad with PayPal

Don't want to pick a side in the credit card vs. debit card debate? There's another payment method to consider when travelling abroad: PayPal’s digital wallet, which offers flexibility.

Whether shopping online or in person, PayPal allows users to link multiple payment methods, from debit and credit cards to bank accounts, all in one place. By adding payment options to the digital wallet, users can pay across borders without carrying multiple cards and enjoy the added layer of security that PayPal provides. It’s a convenient alternative to traditional cards, with the benefit of avoiding some of the fees and risks that come with international spending.