I’ve recently read some posts from bloggers that made me say, “Interesting! Let’s think about this some more.”
First up is Cleverdude, who challenges us to change the way we think about saving money.
How many times have you visited a department store, found a great clearance, and bought a $100-something for 75 percent off? You might come home and proudly tell your friends, “I saved $75!”
No, you didn’t.
You spent $25, and avoided paying full price on a $100 item.
Unless you took that extra $75 and marched it right over to your savings account, you did not actually save $75.
Continue to seek out those great deals, but remember: Saving money generally doesn’t involve spending it first.
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Next, we head to Northern Cheapskate, where Christiana discusses credit/debit card surcharges at gas stations and convenience stores.
At first, you might be mad because you wanted to use your rewards credit card to earn 1 or 2 or 5 percent cash back on your purchase. The cashier rings up your purchase, and tells you that there will be a $0.50 (or whatever) surcharge if you decide to use a credit or debit card.
Stink! It makes smaller purchases totally not worth it.
But wait a minute. By the store charging a fee for people who choose to use plastic or giving a “pay in cash” discount, they could actually be keeping their costs low for everyone.
Merchants who accept credit cards pay a fee to the credit card companies. It can range from 1.5 to 5 percent of the total purchase, according to this site. So every time someone buys a $1.50 bottle of Coke at their store and pays with plastic, the merchant could be saddled with a $0.02 to $0.08 fee from the credit card company. Doesn’t sound like much, but when you consider most non-gasoline purchases at convenience stations, the totals are usually low. These pennies will certainly add up.
It makes sense for a merchant to want to recoup these costs. One way they can go about it is to charge a surcharge, or “convenience fee” for those who use plastic. Note that this practice is potentially illegal in some states (CA, CO, CT, FL, KS, ME, MA, NY, OK, TX) according to this site.
A retailer can either raise prices of its goods to try to recoup these costs, or it can offer incentives for people who use cash.
Christina linked to a story on CNN.com that states merchants are hit with higher fees for cash-back rewards cards, and lower fees for debit.
Perhaps that’s why the Aldi grocery chain accepts debit but not credit–to keep costs low.
While I really prefer using my debit card instead of cash, maybe I should reconsider the convenience of the card and use cash. Maybe it would be for the greater good. At the very least, it would be one way to stick it to the credit card companies. Hmm, I like that idea!
And for people who are excited about earning cash back on a credit card?
Realize that while you might be getting 3 percent of your purchase back, you could also be paying a surcharge upfront. And, if enough people use those cash back rewards cards, then expect retailers to counter it by raising prices across the board. Kind of negates the cash back incentive, doesn’t it?