Planning to travel outside the United States this summer? Take a dollar out of your wallet and tear it in half. That will prepare you for the wretched exchange rate you'll encounter elsewhere.

Short of staying home, there's not much you can do about a poor exchange rate. But by planning ahead, you can reduce the cost of converting your U.S. dollars into a foreign currency.

The cost of using credit cards outside the U.S. has risen in recent years as more banks have tacked on "currency-conversion" fees of up to 2 percent, according to Bankrate.com. These fees are in addition to a standard 1 percent fee that Visa and MasterCard charge for foreign purchases. So you could end up spending an additional 3 percent on every credit card purchase. Many travelers aren't aware of the fees until they get their bills, says Greg McBride, senior analyst for Bankrate.com.

Not all banks impose an additional 2 percent fee. Providian Financial, for example, charges only 1 percent on top of the MasterCard or Visa fee, according to Bankrate.com. Capitol One Financial absorbs the entire MasterCard and Visa fee, so card holders pay no currency-conversion charges. The fees may also be lower for credit cards that are issued by smaller banks and credit unions, says Ed Perkins, author of "Business Travel: When It's Your Money."

If you have several credit cards, you can cut costs by using the one with the lowest conversion fees.

Even with the currency-conversion fee, you'll save money by using credit cards instead of cash for foreign purchases, says Linda Sherry of Consumer Action, which rates credit cards. Credit card issuers can negotiate a better rate than you can get at a bank, exchange bureau or hotel. Those establishments may also tack on surcharges that will add to your costs.

A 2005 Consumer Reports survey found that converting dollars into euros at an exchange bureau cost 10 percent more than using a Wells Fargo Visa with a 3 percent conversion fee. Exchanging dollars at a five-star hotel cost 22 percent more. "It's still a bargain to use a credit card," Sherry says.

COSTLY CASH

Credit cards work fine for most purchases, as long as you resolve to pay off your balance. But you'll still need cash for tips, cabs and cappuccinos. Fortunately, the proliferation of global ATM networks means you can use your ATM or debit card to get foreign currency almost anywhere in the world.

As is the case with credit cards, the exchange rate is usually better than at a foreign currency exchange. But again, you have to keep an eye on fees.

Banks use different methods to charge customers for foreign ATM withdrawals. Some impose conversion or withdrawal fees of 1 percent to 3 percent of the amount withdrawn. Others charge a flat fee of up to $5 per withdrawal. Some banks charge both a flat fee and a percentage of the amount withdrawn.

You can reduce or eliminate withdrawal fees by doing some research before you go, Perkins says. Check your bank's Web site to find out which brands of ATMs are in its network and how much they charge.

Likewise, if you use a debit card issued through Visa or MasterCard, you can check their Web sites for partner banks in different cities, Sherry says.

Doing research will also save you the trouble of searching for an ATM in an unfamiliar country. Sherry recommends writing down addresses for several compatible ATMs in every city you plan to visit.

PAY LOCAL

Finally, be wary of any merchant who offers to convert your bill into dollars. While this may seem like a friendly gesture, "It's a gouge," Perkins says.

You'll still pay the currency-conversion fees imposed by the credit card company and your bank. In addition, the merchant may tack on its own 2 percent to 3 percent conversion fee.

If you suspect that a merchant intends to convert your bill into dollars, explain that you want to pay with the local currency. Don't be swayed by the suggestion that the business owner is doing you a favor. For merchants, dynamic conversion "is another way to make money," Perkins says. "There's no upside for the consumer at all."