Robbing Peter to Pay Paul in Credit Card Rewards

They design credit card rewards as an incentive for responsible financial behavior. But still, people who plan their whole lives around making the most of all the rewards programs out there sometimes wonder if they are being selfish - like they are one of those people who take advantage of a loophole and milk it for all its worth. Why? Well, stores that accept credit cards have to pay the credit card company about 3% of the cost of the sale made. And if it is one of the smaller one-off stores with no branch network, they could pay even more. Well, the store owners aren't ever going to pay out of their pockets. They just turn to raising prices to recover that money. And guess who pays the raised prices? Not the people who go claiming cashback offers and credit card rewards; their credit card rewards more than make up for any raised prices. It will be the people who are so financially troubled that they have had their credit cards taken away from them. If they can't pay by credit card, no rewards for them. So they end up bearing the cost of supporting your credit card habit, rewards and all. Economists go so far as to speculate that the entire rewards structure that keeps the credit card clientele happy, is built on the backs of the cash paying masses.

The concept of credit card fees is beginning to infect the simple and humble debit card too. Accepting debit cards is often just as expensive for merchants as it is to accept credit cards. If all of this sounds a bit too much like robbing Peter to pay Paul, wouldn't we all just be better off if we swore off the freebies and the cashback, and instead just went back to using cash? What would really happen if we did? It wouldn't be easy to figure out exactly how our choice to pay by credit card raises prices. Each card we hold, comes attached with costs of different kinds. If you want to really know what these costs are, you could visit truecostofcredit.com. You simply give them the last few digits of your credit card, and they come back to you having retrieved the lowdown on it.

Typically, the card companies don't make a lot of money just on responsible customers who pay on time each month. Cards become profitable because business houses gladly accept cards and pay the companies the 3% they charge, because accepting cards makes it cheaper for businesses and safer too. Handling electronic transmissions as opposed to cash checks employee theft, and the costs of auditing accounts become more manageable too.

For what it costs you, the customer, to carry a card, the interchange fees that people pay for the privilege stands at about $600 for each household in the country. That is money that could just be saved, with no trouble. What if it makes sense for all of us to just give up our credit cards altogether? Well, if stores all over did not have to pay credit card fees anymore to support credit card rewards, they might just decide to keep the prices where they were, and retain that money for themselves. Banks, having lost the money they made over credit cards, might just decide to pay you less interest on your deposits. Would anything make a difference in the end, to you, the consumer? There is just no way to feel guilty about credit card rewards, and then do something on the individual level to bring about change. Short of buying lots of stock with these, making life easier for those without credit cards just seems an impossible dream.