Loans Answers

Why do we subsidize credit purchases?

Question: Recently I need to be more frugal than usual. My personal rule is to make most purchases using cash. If you don’t have it you can’t buy stuff if you enforce the rule. While standing in line at a home improvment store I noticed most people were using credit cards. Considering the merchant has to pay up to 3% of the transaction to the credit card company it meant that my cash purchase was subsidizing the credit card purchases.

Assume that 2/3 of purchases are credit card and the merchant pays 3%. That means prices must be raised 2% just to break even. Just out of curiousity I asked if there was a cash discount. The cashier said no. I bought my stuff and went over to the manager, described my logic and asked why there was no cash discount. He claimed there was some regulation that does not allow merchants to offer cash discounts.

I have since asked for cash discounts in other stores and was given similar answers. I guess with the dollars involved the credit card companies were able to have a no cash discount regulation created.

Is my logic flawed? Why should I/we pay for others to use credit cards?

Answer: I intend to soon open an Internet business where charge cards are, de facto, a necessity. Ordinarily, I use cash or a personal check, and only occasionally a charge card. The latter can be super if ALWAYS paid on time.

The fee is something like 2.25% per purchase if Master Card and Visa are used. The others charge more. The sins are dual. First, the beyond-greed fee for late payments that is “lawful” can only be accounted for by greed and the power of what is referred to as “money interests.” Are banks worse than insurance companies? truly a difficult question. The second, which sadly shows how effective they are, is that credit card dedt is a major scab across all sections of the American population, worst among college students.

One time one daughter told me in front of the other daughter’s presence that her debt was bad and that I had no need for worry about the matter. Bad credit at least insures that. With a face continually getting bloodless, I asked how much she owed. I figured $5000 if I was lucky since she has been paying off the interest for at least a year. When I was told $500 I could barely bveleive such luck. I almost sank to my knees in bliss-like shock. It was paid off then and there with the only somewhat bad feeling being why I hadn’t been told before. Lastly, 2/3 of purchases sounds mighty low. Ask any lawyer handling a divorce.

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Filed under: Bad Credit Loan