There are many benefits of using credit card, but have you thought about the fact that your credit card use might lead to losses for others?
More and more people are using credit cards for everyday purchases. If the credit card bill is paid when due, it costs no more than holding a debit card, and you can get discounts, bonus points or other benefits in addition. When buying online, it is safer to pay by credit card, and when buying travel, many credit card companies offer free travel insurance. Using credit cards offers many benefits, but why do credit card companies make it so beneficial to use their cards? Should we think about why we are tempted to use it, and who pays for its usage?
Credit card companies earn much money on extremely high interest rates if you do not pay your credit card bill on time. When I do some search towards my country (Norway) 70% of the credit card users pay the entire credit card bill on time, hence no interests need to be paid. The remaining 30% do however pay interests. The credit card companies are therefore wise to generalize the use of credit cards by providing benefits. As the number of credit card users increases, so does the number who will pay interest on all or part of the credit card debt.
Interest-bearing credit card debt is more often found among those with little overview of their own finances, low income, low education, low financial knowledge, low self-control or with the tendency to ignore future consequences. It is also found among people who have financial problems already, and who temporarily solve their problems by using credit. For these, the use of credit cards can quickly cause further problems. The most vulnerable consumers indirectly finance the use of most credit card users.
Another important source of income for credit card companies is the fees they charge when using credit cards. When we as customers demand that both large and small companies accept credit cards, we incur an additional cost. First, companies must pay for the establishment of a subscription for credit card payment. Then they must pay 1.5-2.5% of turnover paid by credit card in fee. This may not be a noticeable expense for large and solid companies, but for many small businesses, such as your hairdresser or physiotherapist, these are costs which will affect the profit. The more people who use credit cards, the greater the pressure to facilitate credit card payments gets for companies in general.
In addition to the fact that credit card use is expensive for both businesses and vulnerable consumers, there may be less obvious costs for all users. Several studies have shown that payment by credit card leads to higher consumption and higher willingness to pay. If people are asked what they want to pay for a product or service, the price quoted is much higher among those who are asked to think that they should pay by credit card, than among those who were asked to think that they pay with cash. Other studies have shown that just the sight of a credit card logo increases people's willingness to pay. The researchers believe it has to do with the fact that it is easy to pay by card, but also that the deferral of payment that comes with using a credit card acts as an anesthetic against the pain of paying. In my opinion it seems that credit card payments seem to make us less critical.
Credit card payment has many advantages, but we should also be aware of the disadvantages. There are good reasons not to use credit cards for everyday purchases where payment by debit card is just as safe. It will save both you and those you shop with, money, and perhaps reduce the pressure to use credit cards for those who should not use them.
Hope you learned something new today folks!
Happy HIVE weekend!
Cheers
-Olebulls