0% credit cards are not free

For me it is to get folks understanding that credit is a tool, an expensive tool.

Merchants make money that is why we dont ask for ID when you present your credit card. Banks make money that is why they issue to practically anyone.

How far can we keep leveraging our economy with credit?

interesting post: never saw it from that angle. on the micro-level, each person probably can only see how it benefits them in the short-term so they will benefit either by getting “free credit”, credit card rewards, immediate gratification, etc. on the macro-level, you are contributing to the acceleration of inflation. but, if we know that by only ONE person stopping use of credit cards, it won’t make a significant impact, why would anyone stop at all and forgo rewards? the same holds true for getting antibiotics from the doctor: if you have bad illness that is likely to be a virus (antibiotics don’t work against viruses), your doctor may prescribe you an antibiotic “just in case” (because there is no 100% way to know whether an infection is viral or bacterial in most cases). However, prescribing all these antibiotics on a macro-level contributes to antibiotic resistance and “superbugs” that eventually can become untreatable. however, what individual will put their own health at risk to slow that resistance down knowing in the long-run, it’s inevitable?

Hmmm, interesting perspective. I think this examination is a little too one-dimensional though. I’m not convinced that credit cards increase the cost of goods. In fact, I’ll go one step further and submit that these tools help LOWER the cost of goods while simultaneously increasing revenue.

For one thing, what alternative does the retailer have? He could lose sales to the competition that DOES offer credit cards. Decreased revenues in this case probably do not compensate for credit card fee “savings.”

The merchant could offer in-house credit. In this case, he will extend credit to customers rather than using VISA\MasterCard system. He will have to maintain another set of books, perhaps hire a bookeeper, and could risk very significant credit losses by deadbeat accounts. Furthermore, he is directing company resources to this activity rather than concentrating on core activities that will sell his product. In this case, his expenses will INCREASE by eliminating credit cards.

So, we have a situation in which VISA\MasterCard takes this on for a modest 3.29%. This sounds like a good deal to me! Furthermore, if the merchant’s profit margins are threatened by this amount, he is a marginal player and he will probably succumb to more efficient competition anyway.

Also, I don’t see very many merchants offering discounts for customers that pay in cash. To me, this seems like a merchant’s stamp of approval for the use of credit cards!

@CoolHappyGuy
You are correct, as a merchant to compete I offer that service to my customers. As a merchant I mark up my bank fees as cost of doing business.

I wrote to Bob because I saw quite a few pf blogs talking about credit as a tool. They argue about self discipline, Dave Ramsey’s stance on credit, and tracking benefits. What I haven’t seen is the cost to use credit discussed.

In the blog’s example the bank makes $967, the merchant makes $267 and customer is out in increased cost of goods. The example is very simplistic to show that there is a cost even to folks that pay their balance off each month that there is a cost.

My theory is that even if you pay off your credit cards each month and discipline not to buy more it is still an expensive tool. Not free.

@coolhappy
The difference, I think, is whether or not we are looking at this in theory or in reality. In reality, I can agree that we are not going to get a bunch of merchants to just stop taking CCs, because they will lose a lot of money. But IF, they all did, I think Gholmes is right, and that overall cost to the retailer would decrease and in turn our prices would be lower.

As far as merchants offering discounts for cash, I haven’t seen it often, but I do know of a gas station that offers a discount for using cash… Maybe GHolmes owns it

Definitely not your typical post on credit cards! Thanks to Gholmes for sharing.

As for coolhappy’s notion that a lack of cash discounts is a retailers stamp of approval to higher operating costs… well there are so many things wrong with that statement.

Retailers DO offer their own credit! It’s hard to shop at retail and NOT get an offer for credit. Some, like Sears, end up making more money off of the lines of credit than the actually merchandise. That’s the seal of approval.

Yes, many gas stations offer discounts for cash, but there are also plenty of small businesses that don’t take plastic at all. Sure they risk losing customers who don’t carry cash, but obviously one that they are willing to take.

Last, we have the anything but modest fee that somehow magically lowers the cost of doing business???

So you’re joined at the hip to your credit card, fine. But don’t make stuff up.

Interesting perspective, though I am not certain it is at all realistic. As the post notes, in order for this to make sense, everyone needs to stop using credit cards. Further, though, merchants need to agree to pass those savings on to the consumer.

In the real world, 0% cards are cheaper. I am not charged more for the same goods whether I pay with cash or credit. Thus, I am saving the 2% rebate the credit card offers making the product 2% cheaper than my cash-paying counterparts. Also you mush factor in any other benefits the credit card issuer is offering, such as price protection, extended manufacturer warranty, travel and rental insurance and theft protection.

$.02

@Jon
Good discussion point and thanks, is it realistic that society would give up credit cards?

Even I have a hard time envisioning that our market place without credit but I hope. For me the benefits of it are too expensive to society/marketplace.

Wife and I choose not to use our credit card and limit how I even use the debit card. Paying cash I do pay more because of credit being extended to others.