Cash and Carry
Cash and Carry By Kevin L. Mallory
So you are not one of those people who make purchases with
credit. Do you feel you are better off? Whoa Nellie! Let me tell
you how it's really not what it seems and frankly doesn't make a
difference in the 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 entire overcharged nation to prove it. Keeping up with the
Jones' has become getting it before the Jones'. We feel we will
always have time on our side to pay for our decisions and so
what I have to make monthly payments 20%-30% more for an item
over time, I've got what I want.
Practically 95% of all businesses accept some type of credit or
debt cards. VISA, Mastercard, Discover and American Express are
not complaining. I know you've seen some business that stress
cash or checks only, no credit or debit. 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 those
companies are compensated. Now apart from that the bank that
issued the card is hoping to make their money off your revolving
(monthly payment) charges. They charge interest on the purchases
you make, thus 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
$50.00. The business owner of course did not purchase the shoes
for $50.00; the price they set is 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 $45.00. So the business
owner has determined for every pair of these shoes he needs to
make $5.00 (profit) to pay for employees, insurance, rent,
utilities, etc. thus the $50.00 price. The price is also
determined to take into account the fact the merchant services
or the company responsible for processing credit card payment
receives a percentage of every transaction. That can be 1%-3%.
Now the price based on 3% is $52.00. Now, a person who purchased
the shoes with credit or debit actually is paying $50.44, all
the other money is going for processing fees. Here is the
kicker. It doesn't matter of you are paying with cash or credit
the price is the same.
So here you are a person who doesn't use credit and you are
paying for those who do. Does that seem fair? Why don't 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
$45.00 and if you are buying with credit or debit the price is
$52.00. This may sound strange but it's easy to do. When you go
in a store there are prices marked but the prices are adjusted
based on the profit the business expect to make. In fact, it's
done in some Latin American countries. Cash is less and credit
is more. Why? Because the store owner can make the same profit
from you paying in cash versus having to pay the merchant
services company a percentage for processing the payment. You
won't get Wal-Mart or any other major corporation to admit this
fact. The next time you frequent a sole-proprietor small
business ask them and they will tell you.
Is paying cash really an advantage? In fact, some business
owners are upset that the merchant services are continually
increasing their prices they charge for processing credit cards
annually or semi-annually and the businesses have to increase
the 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 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 doesn't make a
difference in the price if you are paying with cash or credit,
you may as well benefit.