In this series, I’m looking at our changing attitudes to money, and answer the simple question: are we all credit card slaves now? Part 1 was entitled Where did our attitudes to money come from?. Part 2 is Credit Cards, Bank Accounts and Salaries. Part 3 was The Credit Card Cascade and the Madness of Spending. Then there is the fourth installment in this week’s series:Are you a credit card slave?

No, not me! I didn’t do it!

Naturally, most of us have been lucky enough to avoid many of the pitfalls of owning a credit card: the higher interest rates, the late penalties, and so on. Phew! We can count our blessings… or can we?

Well, let’s see, shall we… There are many ways that credit cards make things more expensive for you…

Credit Card Annual Fees

First, when you apply for a credit card for the first, there is the annual fee. Now, many cards waive the annual fees these days because there are so many choices on the market, and yet there it is in the Terms and Conditions. And if you are unlucky enough, you may find yourself paying for it anyway.

Transaction Costs

There are costs for each transaction that are paid to the credit card issuer: for withdrawals the fee is charged directly to you, and is in addition to any ATM or bank fees that you may incur; for purchases, the transaction fee is ‘hidden’ in the purchase cost of the item you are buying – typically these are 2-3%, but can sometimes be much higher; and if you do a balance transfer, separate fees will also apply. These are the costs are all billed to the consumer.

APRs

Of course, Annual Percentage Rate is the amount of interest that you must pay for borrowing the money. This is the most obvious kind of payment, and yet for consumers, it’s one of the most overlooked. Too many consumers simply look at the amount that must be paid every month, and figure if they can afford that, then it’s okay. Yet higher APRs mean that the amount of interest in terms of the total amount of dollars paid is going to be MUCH higher than you’d expect, and the debt will take much longer to pay off. Oh, and don’t forget there are so many kinds of APRs these days, each depends on the type of transaction taking place.

Exchange Fees

When you travel, and you find yourself charging things to the credit cards, there are additional ‘hidden costs’ that you need to be aware of. An item that is charged in Euros for example will include an exchange fee that will be calculated as part of the exchange from Euros to Dollars. This amount is usually not specified anywhere on your statement. Moreover, it’s quite difficult to figure out the exchange rate actually used for the conversion since the amount is usually credited at a different time or date from when you actually carried out the transaction.

Penalty Fees

There are a number of penalties, fees and increased interest rates that you may incur when you ‘forget’ to make a payment on time. I did this once, and found that I had incurred a $10 late fee. Naturally, I don’t do that anymore. But late fees can add up, and higher interest rates for late payment usually make things worse for the borrower, not better.

These are the most obvious ways that credit cards can make things more expensive for you… but there are also a number of ways that many people don’t realize.

Business Pay Through The Nose

For businesses, if you want to accept credit cards at all, there are a number of fees that you must also pay in addition to the transaction fee mentioned above. You must pay a regular standard charge, you must pay a percentage of the sales, and you may also be liable to chargebacks and fraud.

Even Cash Shoppers Pay More

In some countries, it is illegal for businesses to quote different rates for cash vs. credit card transactions (I wonder why…), so in reality the businesses simply making shopping for EVERYONE a little more expensive, because the costs of using a credit card are part of their cost structure. Since businesses can’t discriminate by who pays (legally), they simply factor the cost of credit cards into their cost structures. From that cost structure, most businesses then decide what profits they need to make.

So, the next time you whip out your credit card to pay for something, think about all the other people who are getting paid at the same time…. You’d be surprised at how much using a credit card really costs.