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How credit card rewards became a $9.2B wealth transfer

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Re: How credit card rewards became a $9.2B wealth transfer

#251

Post by gsb »

nutjob2 wrote: post #166
gsb wrote: post #131

Earlier quoted context omitted.

You're not paid by the banks you're paid by other, usually poorer, customers

Incorrect. I am paid by the banks, I have no financial relationship with other customers. But of course banks make huge amounts of money from poor customers via various fees and interest payments. It warms my heart that I get some of those ill gotten gains insead of the evil banks.

In order for the banks to retain the market power required to keep such high interchange fees in place the need to incentivise those who don't NEED to pay with a credit card to do so anyway, and the biggest way they do this is by splitting the loot with you. You share in the loot, and you share in the responsibility for how it was accumulated.

Re: How credit card rewards became a $9.2B wealth transfer

#252

Post by elmer2 »

gumby wrote: post #238
ramijames wrote: post #121

Earlier quoted context omitted.

I'm 46. I've never had a credit card. I have a bank account and a debit card. If I can't afford something, I don't buy it. You can just opt out of using credit cards.

In the US you have several legal safeguards that are not provided by debit cards. Fraud liability limitations, chargebacks, and so on. You can still implement “if I can’t afford something, I don’t buy it” with a cc. I pay mine off every month so it’s financially the same s a debit card but use a premium card for its purchase benefits.

I used to have this same mentality (no credit cards) when I was younger, until my debit card was stolen and someone took $1000. The bank basically shrugged their shoulders and said there was nothing they could do.

I always get my money back when this happens with a credit card purchase. I've also had to dispute things occasionally, and I almost always get refunded.

Re: How credit card rewards became a $9.2B wealth transfer

#253

Post by croon »

Aefiam wrote: post #199
croon wrote: post #144

Earlier quoted context omitted.

While I hate that it's like this, you're leaving money on the table. Currently you're keeping money in the bank accruing the bank interest to occasionally pay for stuff. With a credit card you would get various bonuses/cashback/gameified returns by owing them money, and it costs you nothing as long as you pay them back once a month interest free. If you however slip up/miss a payment it will cost you a lot. Both case…

as far as I understand it, the creditcard rewards are from the creditcard fee, which is capped in the eu, so you are not missing out much.

Cashback is definitely capped, I'm less sure on other forms of rewards, but by my napkin comparisons, I do get out more "value" from my credit cards than the fees and cashback caps. YMMV of course.

Re: How credit card rewards became a $9.2B wealth transfer

#254

Post by red-iron-pine »

Gormo wrote: post #150
59percentmore wrote: post #87

Earlier quoted context omitted.

Things that are more expensive in the US for no reason: Healthcare Internet access College sighs and adds "The very act of making a purchase" At least we have cheap gas? farts

Internet access isn't particularly expensive in the US. Healthcare, education, and housing are expensive in the US for the same primary reason: political interventions that simultaneously subsidize demand and restrict supply.

it is for what you get. the US LEC and CLEC system sucks, and I had wayyyy more options in the EU, and in fairly upfront and straightforward ways.

e.g. https://documentscontractuels.orange.fr/les-offres-orange-mo...

Re: How credit card rewards became a $9.2B wealth transfer

#255

Post by croon »

nutjob2 wrote: post #161
croon wrote: post #126

Earlier quoted context omitted.

Imagine a world where the pipeline from extra fees back to hoop-hopping cashback didn't exist and your services were just cheaper by the same percentage points instead. It's designed to make money off people slipping up instead of serving customers.

Yes, but there are so many financial injustices and inefficiencies in the world. And it may not work the way you expect. Retailers may favor credit card users if they tend to spend more. There are substantial costs associated with handling cash, so cash users may end up paying more.

Sure, but I'm not comparing credit cards to cash, but credit card incumbents to hypothetical lower rate ones that don't offer rewards in exchange for risk and busywork.

Re: How credit card rewards became a $9.2B wealth transfer

#256

Post by matheusmoreira »

greyw wrote: post #234
matheusmoreira wrote: post #136

Earlier quoted context omitted.

> You shouldn't get a cash discount Maybe, but "should" has nothing to do with it. Either I get one or I use my credit card. > cash costs the merchant MORE than credit card fees That's not my problem.

Just pay with a credit card, it's the optimal way by far (float, flexibility, rewards). No need to overthink it.

It's worth to think about it a bit, especially in larger purchases. Significant discounts on the order of 5% to 10% can easily beat all credit card benefits, and not taking advantage of it leaves lots of money on the table.

I have a little lookup table for this. Interest free installments mapped to cash discount necessary to beat the credit card. I just look it up.

   1x -> ~1.9%
   2x -> ~2.3%
   3x -> ~2.8%
   4x -> ~3.2%
   6x -> ~4.0%
   8x -> ~4.9%
  10x -> ~5.7%
  12x -> ~6.6%
  18x -> ~9%
  24x -> ~11-12%
These numbers are actually conservative. There's a lot of credit card benefits that weren't priced in. I add a couple percent to the required discount numbers and round it up to compensate.

   1x ->  4%
   2x ->  5%
   3x ->  5%
   4x ->  6%
   6x ->  7%
   8x ->  7%
  10x ->  8%
  12x ->  9%
  18x -> 12%
  24x -> 14%

Re: How credit card rewards became a $9.2B wealth transfer

#257

Post by Forgeties79 »

nilamo wrote: post #5
Forgeties79 wrote: post #2

> Because merchants charge everyone the same price regardless of how they pay, those fee costs are factored into prices for all shoppers. However, credit card users get that money back and then some through rewards, while cash and debit users get little or nothing. >The result: People paying cash face the equivalent of a 26% higher sales tax than premium credit card users shopping at the same store. I am surprised th…

And there I was thinking it was obvious that merchants wouldn't just eat cc fees, and would cushion all prices to account for their costs.

You’re right but that’s actually not the part I’m talking about. Specifically the fact that even though we are all “being charged the same price,” as prices increase, the amount I am saving increases as well due to cashback or other benefits on a credit card. And because I am spending less money, I ostensibly have more money to make my credit better, which means the benefits only increase on top of that.

It’s a variation on a theme we are all very familiar with. It’s expensive to be poor. But this is another angle I hadn’t really considered. It’s a little more complicated than just “I can have better cards with better benefits.”

TL;DR: The actual cost per item for me is, in very literal and quantifiable terms, lower as a result - and the more expensive things get, the steeper my discount gets while the person next to me paying cash is paying a little more than I am every transaction for the same items.

Put another way: As price/inflation increases, the real number I am saving increases as well. So we aren’t just paying different prices, but their increase is also higher the higher prices get.

Re: How credit card rewards became a $9.2B wealth transfer

#258

Post by rpdillon »

ramijames wrote: post #151
amazingamazing wrote: post #138

Earlier quoted context omitted.

Honorable but foolish. You could effectively get a discount and still use it the same way as your debit card.

Sorry, but I don't care what other people think. It's my money and I'm careful with it. The entire credit card industry is set up to squeeze out as much profit from people as possible. They offer discounts as an incentive, but it is a huge trap that many, many people fall into. I'm not interested in risk. I'm interested in simplicity. It's participating in the credit card industry that is foolish.

I completely get where you're coming from, but credit cards are a tool, and you can came out way ahead using them properly. For starters, they are key to having a good credit rating, which opens a lot of doors - maintain 3 open cards, pay off the full balance every month, and keep those accounts open for 10+ years. Big lift.

Second, never use a card with an annual fee.

Third, which I already said, but bears repeating: pay off the full balance every month.

Fourth, look out for one good rewards card and funnel expenses through it, so you can get the rewards.

My parents taught me all of this 40 years ago, and it was exceptional advice, and has served me (and my family) very well.

Credit cards are not about carrying debt. They are the worst tool for that.

Re: How credit card rewards became a $9.2B wealth transfer

#259

Post by bluGill »

matheusmoreira wrote: post #256
greyw wrote: post #234

Earlier quoted context omitted.

Just pay with a credit card, it's the optimal way by far (float, flexibility, rewards). No need to overthink it.

It's worth to think about it a bit, especially in larger purchases. Significant discounts on the order of 5% to 10% can easily beat all credit card benefits, and not taking advantage of it leaves lots of money on the table. I have a little lookup table for this. Interest free installments mapped to cash discount necessary to beat the credit card. I just look it up. 1x -> ~1.9% 2x -> ~2.3% 3x -> ~2.8% 4x -> ~3.2% 6x -…

Mathematically you are right. However those interest free payments are generally setup in such a way as to make it highly likely you won't pay it off by the end of the interest free period. The bills they send contain the minimum payment - designed to get you past that time. I don't trust my ability to get the fine print right - it only takes messing this up once to destroy all the gains from several times getting it right. So I use the credit card anyway and pay it off every month - that payoff is the one number I can get right every month.

Re: How credit card rewards became a $9.2B wealth transfer

#260

Post by vamli »

joenot443 wrote: post #188
59percentmore wrote: post #87

Earlier quoted context omitted.

Things that are more expensive in the US for no reason: Healthcare Internet access College sighs and adds "The very act of making a purchase" At least we have cheap gas? farts

Bit for bit, internet access is cheaper in America than it is in Canada or Australia. Canadians like myself have ~40% of our provincial taxes spent on healthcare, so in my case about ~8% of my gross income. Somewhere in the tune of $20k/yr. While I was living in Seattle and filing American, quite a bit less of my gross income went to healthcare. Just food for thought.

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