- Centurion Member
- Posts: 144
- Joined: Sat Jul 12, 2014 7:38 am
- Location: Atlanta, GA
I think part of the problem is that people don't understand who, ultimately, pays the fees (or taxes, for that matter).
Let's use a simple tax example:
Your town wants to buy a new bus. There are two ways to do this:
1) The town could just buy a bus
2) The town could send a bunch of money to D.C., far more than the cost of the bus, and hope to have D.C. buy a bus for their town through some program.
Either way the town is buying a bus. The second way is more far more expensive but the people of the town feel like they're getting something free back.
A simple way of looking at that is: They're taking all that tax, anyway, why shouldn't we get our free stuff from it?
The problem is that there's a thought that 1) it's free and 2) your taxes could be less (granted, another argument) if you stopped asking for and expecting free stuff. Ultimately, it's cheapest for everyone in town to just pony up and pay for the bus, straight.
For credit cards society has essentially said, "Yeah, we like the convenience of credit cards and will pay the fee no matter what." So everything costs slightly more because everyone likes the convenience of using credit cards. The merchants spread this cost to all of their products and, generally, it's not worth the hassle of them working cash-only deals, though some of them do so.
This wasn't always the case. Go back 40 years and credit was used to pay for large items like a washing machine, expensive car repair, or a new mattress. It's only fairly recently (last 10-15 years) that paying for a $5 meal at McDonalds with a Visa has become commonplace. That convenience is there but it's not free. Everything costs more because of such a large portion of the population liking the convenience of paying with credit cards.
A person paying with cash is paying an slightly higher price to compensate (in a way subsidize) credit card transactions. The same can be said for a person paying with Visa which charges 2-3% from what I understand subsidizing a person paying with American Express which, again, from what I understand, is 4-5%. It all gets aggregated into the total cost of said item.
All of that is fine and there's not much you can do about it. What I'm saying is that the 1-5% cash back games just add to that overall cost and, while you think you're getting something "free" back, you're allowing someone to lift that plus some from your pocket to give you your "free" stuff and pay for the cost of handling the "free" stuff. It's not free.
It's not a lot different from taxes and then saying, "Well, they're taking it from us, anyway, why shouldn't we get something back??" The problem is two fold in that 1) you're right in a way and 2) you exasperate the problem by contributing to it. (Why shouldn't every town get a free bus?)
I'm not trying to bust anyone's chops for getting cash back or other perks. I'm just saying that it's a kind of shell game that's always bugged me.
Regarding paying more for a card in terms annual fees or interest rates to get cash back: I suppose, in a very pure sense, if you PIF every month forever then it's a deal depending on how long it takes you to cross the AF mark.
You can do the math on a 1% cash back card with no AF vs a 2% cash back card @ $100/yr AF.
At $10,000/yr in spending:
- 1% back puts $100 in your pocket
- 2% back puts $200 in your pocket - $100 AF = $100 in your pocket.
In that situation I'd take the 1% card as I don't have to make up the difference. I start out ahead of the game. The $100 AF card, to me, is a discount I have to buy into in two ways:
1) I have to buy into the $100AF card
2) I have to commit to spending $10K/yr on that card in order to break even.
The 1% no AF card I don't have to do anything. Right out of the gate I'm getting 1% back.
The interest rate is important to. Again, in a pure sense, if you're PIF every month and NEVER carrying a balance ever, then you can be all about the cash rewards. If you do carry a balance from time to time, maybe you need to buy a new laptop or you've taken a trip and it'll take you several months to pay it off, then the 15% card with any sizable balance, wipes out that cash back rather quickly whereas the lower interest rate card means that the money you bought, which is essentially what you're doing, costs you far less:
For example you take a trip and it puts you $5000 in the hole. You pay it off in 6 months at 15%APR:
$5000 @ 15%APR for 6 months is going to cost you $221 in interest.
Let's say you do it on a lower interest rate card at 10%:
$5000 @ 10%APR for 6 months is going to cost you $146 in interest.
That's $75 difference which kills off a good bit of cash back or other rewards.
So, to me, going in with no AF and a low interest rate easily trumps some 1-5% cash back deal. I know going in that I'm already ahead of the game and I don't have to make up anything to try to come out even next year in terms of cost of ownership for the card.