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Thursday, April 09, 2009

Credit cards or cash?

Remember when you carried a lot of cash? Remember the old saying, "Cash on the barrel head."? That’s the way business used to be done but today we live in a credit and debit card society.

If you are a victim of the economy, you may or may not use cash or you may prefer to charge everything on your MasterCard or Visa. I do the latter because credit cards offer incentives in the form of cash or other items. I pay my card off every month and collect the points toward cash. It’s logical for me since I get an occasional check for $500 from them.

I know people who still insist on paying cash for everything. That’s very noble but these days it doesn’t make much sense. By paying cash you are technically paying more for certain products because the retailer has to build into his cost the processing charges made by the credit card companies and banks. For example, in the grocery business, credit and debit card sales now account for an average of about 53% of sales. In higher end areas of town, it can reach as high as 65%. Processing charges in a typical store doing about $380,000 in business per week can reach the $130,000 per year range. The store has to get that back somehow and it is usually done by raising retail prices.

Although using your credit card and paying it off monthly makes sense, many find it impossible to use that system because with the extra cash lying around they would spend it too and not be able to pay off their bills. If that is you, forget about using credit cards unless you want to become a victim of making partial payments on the cards thus putting you on a monthly merry-go-round of high interest rate costs.

I’m not saying that card processing fees are the sole reason grocery prices are high but they are one reason. The biggest reason, according to the Food Marketing Institute, is employee theft which last year increased for the third straight year and accounted for 40% of shrink . With the bad economy, that figure along with shoplifting is expected to go even higher.

You may as well take advantage of credit card rebates to help offset the costs that are passed on to the customer. Just be sure to pay your bill in full each month to avoid interest charges.

Remember when you carried a lot of cash? Remember the old saying, "Cash on the barrel head."? That’s the way business used to be done but today we live in a credit and debit card society.

If you are a victim of the economy, you may or may not use cash or you may prefer to charge everything on your MasterCard or Visa. I do the latter because credit cards offer incentives in the form of cash or other items. I pay my card off every month and collect the points toward cash. It’s logical for me since I get an occasional check for $500 from them.

I know people who still insist on paying cash for everything. That’s very noble but these days it doesn’t make much sense. By paying cash you are technically paying more for certain products because the retailer has to build into his cost the processing charges made by the credit card companies and banks. For example, in the grocery business, credit and debit card sales now account for an average of about 53% of sales. In higher end areas of town, it can reach as high as 65%. Processing charges in a typical store doing about $380,000 in business per week can reach the $130,000 per year range. The store has to get that back somehow and it is usually done by raising retail prices.

Although using your credit card and paying it off monthly makes sense, many find it impossible to use that system because with the extra cash lying around they would spend it too and not be able to pay off their bills. If that is you, forget about using credit cards unless you want to become a victim of making partial payments on the cards thus putting you on a monthly merry-go-round of high interest rate costs.

I’m not saying that card processing fees are the sole reason grocery prices are high but they are one reason. The biggest reason, according to the Food Marketing Institute, is employee theft which last year increased for the third straight year and accounted for 40% of shrink . With the bad economy, that figure along with shoplifting is expected to go even higher.

You may as well take advantage of credit card rebates to help offset the costs that are passed on to the customer. Just be sure to pay your bill in full each month to avoid interest charges.

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