Credit Cards

[chartman]

There are numerous financial advisors running around telling people to not use credit cards. Pay off your cards and use cash only.

What most people do not realize is consumers are paying for the use of a credit card whether they even own a card. The merchant has gotten the expense of the card build into his price that everyone pays. There is no discount for paying cash at the majority of stores that accept credit cards. In fact, the discount comes from using the card and getting a rebate from the card company.

If the customer uses discipline when purchasing and pays off the card balance every month, then there is no reason not to use a credit card.

 

[Overnight]

If the customer uses discipline when purchasing and pays off the card balance every month, then there is no reason not to use a credit card.

If they could do that, then why not use either cash, or a charge card like AMEX? Maybe the advisors were speaking under the assumption that if you have to use a credit card, you cannot afford what you are trying to purchase?

 

[Overnight]

Oh, and this line is rich!

...The merchant has gotten the expense of the card build into his price that everyone pays. There is no discount for paying cash at the majority of stores that accept credit cards...

So you are saying that people who pay cash are actually paying higher prices to cover the extra expense of people who pay with credit and have to pay merchant fees? Wouldn't it make more sense for the business to simply write-off the merchant fees as a business expense and keep prices lower?

 

[Xela]

There are numerous financial advisors running around telling people to not use credit cards.

Context is everything: I think they're explicitly or implicitly telling them not to use credit-cards as a way of borrowing money. And very good advice that tends to be, too: credit-cards are one of the most expensive ways of borrowing money.

 

[FCXoptions]

Wouldn't it make more sense for the business to simply write-off the merchant fees as a business expense and keep prices lower?

If everybody added 2% to their prices to cover this fee, wouldn't you? Or would you keep your prices the same and then take the 2% hit for the fee when they use a card?

If you use a card with cash back, you get the majority of this markup back in rewards more than likely where as the cash buyer is paying the markup and gets nothing extra in return.

Sure I would rather save 2% or whatever it is, but I don't see that happening.

 

[Overnight]

...Or would you keep your prices the same and then take the 2% hit for the fee when they use a card?

If I could write-off the merchant fee as a business expense, then yes, I would keep the prices the same.

 

[Xela]

The merchant fees tend to be highly negotiable, actually, in inverse proportion to the volumes transacted by the merchant (though the credit-card companies have a habit of not revealing this, up-front, when they contact retailers). Some people pay a bit more than 2%. Some pay a lot less.

 

[Overnight]

The merchant fees tend to be highly negotiable, actually, in inverse proportion to the volumes transacted by the merchant (though the credit-card companies have a habit of not revealing this, up-front, when they contact retailers). Some people pay a bit more than 2%. Some pay a lot less.

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[chartman]

Oh, and this line is rich!



So you are saying that people who pay cash are actually paying higher prices to cover the extra expense of people who pay with credit and have to pay merchant fees? Wouldn't it make more sense for the business to simply write-off the merchant fees as a business expense and keep prices lower?

Yes, people who pay with cash are paying the credit card merchant fee which is included in the retail price. The credit card companies have done an excellent job of marketing their product. Customers expect a retail merchant to accept credit cards. A merchant with any sales volume could not absorb the loss by not charging the card fee to customers especially since such a small difference in retail prices would not attract new customers.

 

[Sig]

If I could write-off the merchant fee as a business expense, then yes, I would keep the prices the same.

"Writing off" an expense doesn't make it go away. If you sell something for $100 that cost you $99 to sell with a 1.9% merchant fee you just lost money, write-off or no!
Since the vast majority of purchases in most businesses are by credit card any company that has even a basic grasp of pricing factors the merchant fee into their price and indeed you as a cash customer subsidize the credit card users. Except that sketchy gas station right on the edge of the not so great part of town, you know the one, every town has one, where they give you a nickle discount for paying cash and they've got little signs hand written in magic marker on the back of ripped off chunks of cardboard boxes?
As FCXoptions pointed out, if you aren't charging every possible thing to your credit card and using a cash back or miles card you're simply leaving money on the table, and that's just poor money management.