Cash and Carry
By Kevin 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.
Kevin L. Mallory, MBA/A is creator/founder
of The Payers Club.com. It is a webservice
dedicated to support members and pay their
personal debt. http://www.PayersClub.com
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