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So you’re traveling in Mexico, and you decide to buy some souvenirs or a meal using your credit card. When you hand over your card, you are asked by the clerk, “Would you like to pay in pesos or dollars?” You may wonder if you should pay in dollars or local currency. Though the answer is simple — always pay in local currency!

Why it’s better to pay in local currency

When you allow the clerk to process the charge in dollars (or your respective home currency), then you are accepting the exchange rate set by the merchant. This is generally set at an unfavorable rate. Merchants will often inflate the exchange rate, resulting in you paying more for the item or service.

If the charge is processed in the local currency, then the bank will convert the price at the standard daily rate. This is generally the best rate. It’s the same rate used by the ATMs, which is why you should always get your cash there rather than a currency exchange booth.

The same rules apply to cash. You’ll generally get better prices if you pay in the local currency. So definitely keep that in mind when given the option.

Additional tips and considerations

In addition, here are some tips to help you save money when paying for purchases abroad.

1. Use a credit card with no foreign transaction fee:

If you’re using a credit card abroad, then you should be using one that does not charge a foreign transaction fee. Most premium cards, like the Chase Sapphire cards, American Express Platinum, and Citi Prestige card have this feature. Some issuers, like Discover and Capital One, do not charge a foreign transaction fee on any of their cards. If you are unsure, then make sure you contact your issuer to verify.

2. Carry a Visa and MasterCard:

While many merchants are starting to accept American Express, most will only take Visa and MasterCard. If you primarily use American Express, I would suggest carrying a secondary Visa or MasterCard to be safe. Also, my experience is that other cards like Discover, JCB, and Diner’s Club tend to have very limited acceptance while traveling, especially with smaller merchants.

3. Get an ATM card that reimburses your fees:

We also covered this in the “Getting Cash Abroad” video/post. Certain bank accounts reimburse you for any ATM fees incurred, even when abroad. One such account is the Charles Schwab High Yield Checking account. It’s free to open, and will reimburse all your fees. I like to use it since it’s not my primary checking account. This means that if it were to get compromised, I wouldn’t lose the money in my primary account. I usually load it before my trip, and keep my primary debit card with my passport in the hotel safe.

NOTE: You can get a $100 bonus when opening a new Charles Schwab High Yield Checking account if you use our referral code: REFER6ZT8H

4. Break your large bills:

When you get money from the ATM, you generally get large bills. This makes it complicated to pay for taxi transactions or tips. I suggest asking your hotel concierge to break the bills as soon as possible, or paying restaurants or merchants with larger bills in order to get smaller notes. Though don’t be surprised if smaller vendors are unable or unwilling to break your bills.

5. Download a currency exchange app:

When traveling internationally, it can be tough to make the conversion in your head. Luckily, there are a ton of apps that you can use to make the conversion quickly and efficiently. Most of these apps can pull the latest exchange rate too if you have a data connection.

Do you have any experiences or tips on paying in local currency? If so, please share them below in the comment section.

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