For years, I have taken advantage of my Northwest Airlines WorldPerks Visa credit card (a product of U.S. Bank) to accrue airline miles and gain free travel for myself and my daughter. All my friends know my system -- I pay for the entire restaurant bill, they give me cash, I get the miles/points and the best exchange rate possible for converting U.S. dollars into euros.

It was a perfect system until a few years ago. That's when they started imposing additional conversion fees on foreign currency transactions.

Visa and MasterCard impose a 1% fee on the bank for the conversion. They claim they "use a currency conversion rate of either a government-mandated rate or a wholesale market rate in effect the day before the conversion date and increase the dollar amount by 1%, which they keep for converting the currency." And the credit card issuers have been in turn quietly imposed their own additional surcharges of 1% to 4% without providing any new service.

Just today (June 11, 2003) a notice arrived announcing a 3% imposition beginning July 23rd (1% from Visa/MasterCard, 2% from the bank). The charge represents pure greed, and the issuing banks know they can get away with it because it's buried in the foreign exchange transaction. There's no line item on the bill for the charge. You would have to do some research to realize that you've been charged roughly 3% more than a competitive exchange rate would suggest.

A simple calculation tells me that if I used the card to achieve 40,000 miles for redemption of a round-trip intercontinental ticket during low season, it would cost me $1200, double what I paid last month to fly Paris-Los Angeles on British Air!

To determine if you're one of unlucky losers, get out your card issuer agreement and look at the fine print under "currency exchange," "foreign currency transactions," or a similar heading. Both the 1% association charge and any charge by your issuing bank should be spelled out there, although the wording may not be crystal clear.

If you aren't sure based on your agreement letter, call the toll free number on the solicitation and tell them you want to discuss the terms of the offer. Specifically, ask about how much is charged on foreign currency transactions, and of that amount, how much is charged by the card association and how much is charged by the card issuer. Unfortunately, you may have a hard time getting a reliable answer to these questions. Representatives aren't often well trained on this subject.

It wasn't too difficult to find several Web sites that help you compare the benefits of all the credit cards. A good place to start is http://www.bankrate.com, which may have this information for the card your thinking about -- or not.

One thing to keep in mind, particularly for Expats: Mileage cards attached to specific airlines may restrict your travel to a very limited number of airlines (itself and its partners) and still may charge a conversion fee. All mileage cards not attached to specific airlines may allow redemption of the award miles on any major airline, international or domestic, but all travel must originate from the U.S. Since an Expat's origination is usually their foreign home, this poses a "Catch 22" for the free flights "game."

But, plastic's still great. Exchange rates offered by credit cards are better, sometimes lots better, than those offered at a currency exchange counters and even at overseas banks. It's still almost always a big enough difference to cover the new surcharges from credit card issuers. Paying with plastic is also quick and convenient. Particularly in Europe, card acceptance is widespread.

In addition, many credit cards come with traveller-friendly features. Some provide extended protection against theft and the accidental damage of purchases, an important consideration when transporting or shipping items back to the States. Others offer travel accident and car rental insurance.

Paying by credit card also gives you the opportunity to dispute a bill from a foreign merchant. The U.S. Fair Credit Billing Act applies to overseas transactions. The FTC has a brochure that describes the Act.

One thing you don't want to do with a credit card in Europe is take out a cash advance at an automated teller machine. Fees and interest are steep on these withdrawals starting immediately from the time and date of the transaction. Instead, use a direct debit card to get cash from European ATMs.

Special Note: To apply for a U.S. credit card, you must have a U.S. address and once the account is open, you can easily change the mailing address to your foreign address. Until then, all cards and correspondence will go to your U.S. address. It's a good idea for Expats to keep at least one credit card with their U.S. address for purchases made online, since not all secure server payment systems will recognize the foreign addresses.