There are times at work when I spend hours in the lab. These are perfect times to listen to my iPod. And so I’ve been catching up on some old podcasts. And like the nerd that I am, I listen to quite a few finance podcasts. I’ve been going back and listening to my backlog of Marketplace Money, a personal finance podcast from American Public Media. Anyway, they talk about credit cards quite a bit, and how different people use them. Many people have chosen to go the Dave Ramsey route and go debt free, including not using credit cards. Some use credit cards, but pay them off every statement. Others carry a balance, and, in the most severe cases, have had to go to Debtors Anonymous or through credit counseling to dig themselves out of massive amounts of debt.
At any rate, they got me thinking about the use of credit cards. In this discussion, they laud the benefits of using a debit card, since it is much more difficult to go into debt, as you can’t spend more than you have (ignoring overdraft fees/protection). But they also point out that there are some benefits to using credit cards, or even selecting the credit option when performing a debit card transaction, as credit cards provide more financial protection against theft/loss. And they do also sometimes offer other benefits, like an extended warranty on the purchased items. They also discussed the differences between the two in a much earlier show.
During this discussion about the differences between using credit cards/selecting credit when you swipe your debit card, vs. selecting PIN/debit, I recalled hearing that different transaction fees are levied on the seller depending on what option you select. And here’s the thing: These fees really add up. Another marketplace story discussed how many merchants are loath to accept credit cards for purchases. The fees they must pay eat into their very thin profit margins in many cases. I’ll agree (and the article also mentions) that sometimes companies would lose business if they didn’t accept credit cards/debit cards, since some people might not have enough cash on hand for their purchase. But I think I’m like many people in the personal finance world (and the teacher interviewed here) that will basically use credit for every purchase possible. It’s all about the points. (Which always makes me think of this clip from Home Movies). We figure if we’re spending money, we might as well get something from it. Whether it’s for cash back, airline miles, or donations to a charity, it seems that our money is better spent if we’re getting something extra out of the deal. For smaller purchases, I still use my credit card for that very reason, even if I have cash on me.
So, while people often chose to use credit even when they have other options, it’s costing the vendor money. This extra cost will either hurt the vendor directly by eating up their profits, or hurt the consumers (i.e. us!) if the extra expenses are passed on to the customer. And it seems that this problem affects some more than others. The employees/owners are hurt by a decreased income, and/or the higher prices will make it harder for the least fortunate to afford the goods they need.
So, here’s the thing. If transaction fees were eliminated, I’d be super keen on using credit for even the small purchases. And if none of my credit cards came with rewards, I’d be more likely to use cash. But I honestly don’t know if I’d be willing to give up using my credit card for everyday small purchases. Does that make me a bad person? I want to earn those points, and be able to easily track purchases online.
How do you feel about this? I mean, I think most of us would agree that credit card companies make quite a bit of money even without imposing hefty fees on each purchase. But I don’t know if anything will change.