Credit, Cash and Carry

So you are one of those people who make purchases with cash not credit. Do you feel you are better off? Whoa Nellie! Let me tell you how it's really not what it looks and frankly does not make a difference in the financial scheme of things.

Let's first look at what we should consider the root cause of this situation. We have become a debt nation. We want what we want and we want it now. The day of saving and sacrificing for something we want appears to be a thing of the past and we have an entitlement overcharged debt ridden nation to prove it. Keeping up with the Jones 'has become getting it before the Jones' no matter the cost. We feel we will always have time on our side to pay for our decisions and so what we have to make monthly payments 20% -30% more for an item over time, we've got what I want.

Practically 95% of all businesses accept some type of credit cards. VISA, Mastercard, Discover and American Express are not complaining. They benefit every time you use one of them. I know you've seen some business that stress cash or checks only. There is a reason and you will soon learn why.

Did you know that the credit card companies (VISA, Mastercard, Discover, and American Express) get a percentage of every transaction made with their card? Every time a card is swiped, for the privilege of using a card with their logo companies are compensated at a rate of 1%. Now apart from that the bank or financial institution that issued the card is hoping to make their money off your revolving (monthly payment) charges. You carry a balance and they charge interest on the purchases you make, then profits. I'm getting ahead of myself.

Let us for the sake of this explanation assume you are purchasing a common item, a pair shoes. Nothing fancy, just a normal pair of "Brand X" cross trainers. The estimate cost $ 52.00. The business owner of course did not purchase the shoes for $ 52.00; they set their price based on what they want to receive in profit for selling the shoes. For this example let's say it's 10%. So now the price should be $ 46.80. So the business owner has determined for every pair of shoes sold he needs to make $ 5.20 (profit) to pay for employees, insurance, rent, utilities, etc. then the $ 52.00 price. The price is also determined to take into account the cost of accepting credit. Do not confuse a credit card with a debit card although it is similar.

The fact is the merchant services or the company responsible for processing credit card payment receives a percentage of every transaction. That does not include the credit card company (VISA, Mastercard, Discover, AMEX) 1% usage fee. The merchant service charge can be 1% -3%. So, that $ 52.00 pair of shoes, minus 1% usage fee means the credit card company receives $ .52 just for you using their card. This does not go to the bank that issued the card it goes to VISA, Mastercard, Discover or AMEX. After which the merchant services charges 3% for processing the transaction. The final cost to the store owner is $ 49.94 although you were charged $ 52.00. It may not seem like much but multiple that transaction by the number of times Americans use our credit card on a daily basis. To gain the loss in profit the business owner has to overprice his products to compensate for what has to be paid to the credit card companies and merchant services. Here is the kicker. It does not matter of you are paying with cash or credit the price is the same. The owner profits more with you paying cash versus credit but the final price does not change.

So here you are a person who does not use credit and you are paying for those who do. Does that seem fair? Why do not stores have prices based on how you are going to pay for the item? For instance, if you are purchasing the shoes with cash you pay $ 50.00 versus $ 52.00. This may sound strange but it's common practice in other parts of the world. There is a "cash" price and a "credit" price. You simply discuss with the business owner what you will pay. Why? Because the store owner can make the same profit from you paying in cash versus having to pay the merchant services and credit card company a percentage for processing the payment. The next time you frequent a sole-proprietor small business ask them and they will tell you.

In fact, some business owners are upset that the merchant services are continuing increasing their prices they charge for processing credit cards and the businesses have to increase their bottom-line prices of their items to make up the difference to both cash and credit customers. If you are one of those individuals who pay in cash there is one way to circumvent this growing trend. Find a credit card that offers points, air mileage or rewards based on purchases. Assuming you will pay off the balance in full when the bill comes this can be very advantageous. You make your purchases as normal, pay off the balances and reap the benefits of the points or rewards. Since it does not make a difference in the price if you are paying with cash or credit, you may as well benefit.

Source by Kevin Mallory

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