Have you ever sat back and thought about where the money comes from to pay you points, to give you cash back, etc.?
I always knew that credit companies made money on interest—because they’re betting that you won’t pay your card off each month. What I didn’t always know is that merchants pay a percentage of each and every sale in order to give you the option of using plastic.
Lower That Price
When I was in high school, I wanted a MIDI keyboard. These keyboards have special ports that allow your musical keyboard to hook up to your computer for sequencing and recording music. So, my dad and I went shopping, and we found one I really liked, but it was exorbitant in price. My dad said the he knew a way to get the price cheaper, and asked the guy if he’d take 5% off the price if my dad paid cash.
The man told my dad “no” and then added, if you’d paid with credit, I would have tacked the 5% on.
Gas Stations
There are two interesting gas stations in our area. One is cash only, full-service. This station is always competitive with those around. Another, on a main road, advertises a price that beats the one a few yards away by almost 10 cents because the advertised price is a cash price—and in small print there’s a credit price that matches the other store.
Credit is not Free
Despite what you think, you’re points aren’t free. They are paid for in higher costs for everyone that shops at the store. As ChristianPF points out, 0% Credit Cards are Not Free as well.
Each and every time you use that piece of plastic, you’re causing the retailer to pay 5% of their sale to the credit company. This, in turn, causes prices to go up, and thus pass this cost back to the customer.
Fast Food
Wonder why so many fast food companies took so long to take credit cards? It’s not because of the technology!
Many fast food vendors kept out of the credit market because they knew it would raise their costs, and thus raise their prices. Wendy’s consistently bragged about not raising their prices in years, and credit would do just that.
Using Cash Has Advantages
Whether it’s negotiating power, or controlling prices at a retailer, it’s beneficial to use cash over credit. Cash is the only tangible thing that lets you actually feel how much you have left. It promotes good discipline, and it helps all the other people shopping at the same place.
Your plastic—even if you pay it off each and every month—gives you none of that and contributes to higher prices.
I’ll stick with the cash, thank you.
This is a very true post, Min. We have a credit card machine at the counseling ministry for materials we sell, and it is astronomical the fees we are charged (and we only take 2 kinds of cards – I can’t imagine how much we’d pay if we took every card out there).
Cash is definitely the best bargaining tool. When you can flash the cash, you’re almost guaranteed to get some sort of discount.
On the flip side cash is becoming less and less in our society (and the world). And until EVERYONE goes to a cash only system (which I don’t think will ever happen again) we will all have to pay for people using the cards. So if I’m going to have to pay it anyway, I might as well get some benefits out of the card.
I just checked out Dave Ramsey’s book from the library, you’ll be happy to know. He talks about a lot of the same things you do. I’m not done with it yet, but I’ve been challenged on several things. And you’re right, when it comes to the use of cards and their benefits, I’m in a very, very, very, VERY small minority. I plan to post on it in the future for the book club.
Rachels last blog post..Wow… You Have to Watch This
Posted by Rachel | October 15, 2008, 3:33 pm@Rachel: I don’t think we’re going to go back to an all cash system– but that’s more because of how I think the world is progressing toward the end rather than whether or not it’s practical.
In any case, the higher the percentage of card users, the higher the price of the item, such that encourages more people to get on cards just to make by. In the meantime, if we broke the cycle we’d have more negotiating power, the seller would actually keep more money, and we’d get our goods cheaper.
It’s a different way of thinking– that’s for sure.
Posted by MInTheGap | October 17, 2008, 11:11 am