Today, I have a couple of pre-emptive tips for those of you who will be traveling this summer. The first is for those who will be traveling abroad, and the second for travelers who plan to pay bills ahead before they leave town for an extended period of time.

Tip 1. Here's what international travelers need to know before they take off this summer: American Express, MasterCard and Visa charge your bank (usually 1 percent) to convert dollars to the local currency when you travel. The bank that issues your card also charges a fee for each transaction (typically 2 percent). This international transaction fee is added to any purchase whether it's a $3 piece of pizza or a $5,000 piece of art. Travelers can avoid this fee by comparing credit cards and choosing the right card before you leave. An additional 3 percent on top of all your other travel costs is going to make your vacation even more expensive.

Capital One is currently the only major issuer that does not charge a foreign transaction fee. In fact, the bank also eats the 1 percent charge from Visa and MasterCard. That means if you make a $500 purchase, a Capital One card will save you up to $15.

Tip 2. There are two common reasons that homeowners send extra money to their mortgage companies:

To pay down the principal. When you pay down the principal, your loan balance goes down, but you still have to make the next scheduled payment. Let's say you make your regular mortgage payment in May, plus three extra payments. You enclose a note that the additional payments are to pay down the principal balance. You will still have a payment due in June, July and August, as scheduled.

To pay the account ahead. On the other hand, let's assume that you sent those three extra payments because you are going to Europe for the summer and you want to pay all of your bills in advance before you leave so you won't have to think about it. In this scenario you want to "pay ahead." You'll be back before the September payment is due.

If you were not clear on how you wanted the extra funds handled, the lender might assume you want to pay down the principal balance. You head off on your trip assuming you've made your mortgage payments. You don't get the late notices because you're not at home. You arrive home only to learn that your house is in foreclosure for failure to pay. You cannot assume the mortgage company will automatically pay your account ahead if you do not send clear instructions.

When you make prepayments on your mortgage, always enclose clear instructions. Then follow up with a phone call in a week or two to make sure those instructions were understood and followed.

Happy travels!

June 21, 2010

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