7/11/2011 11:25 AM ET|
4 times you shouldn't pay with plastic
Credit cards are convenient and offer you lots of protections -- but there are times when using them (or trying to) just buys trouble.
We're used to thinking of credit cards as something we can use whenever we choose. But a few recent stories are reminders that we either can't or shouldn't use credit cards for absolutely everything. Here are four examples.
1. When your purchase is morally questionable
You might think that credit card companies would be shy about pointing their collective finger when it comes to morality. But no. SmartMoney, a Wall Street Journal website, recently revealed that at least one card issuer won't authorize transactions for medical marijuana, even when supplied by licensed outlets in states where its sale is legal.
Some credit card companies also refuse payments for online pornography, and many won't let you buy casino chips with their plastic. Some consumer advocates believe these restrictions are impossible to justify, but one lawyer told SmartMoney that he sympathizes with card issuers' policies, at least as far as medical marijuana is concerned. He says they could be vulnerable under federal law if they were to abet users in their purchases of drugs.
2. When you're financing your startup enterprise
Of course, there are some outstanding success stories about entrepreneurs who financed their startup companies using credit cards. And many financial advisers say it's fine for credit card debt to have a role in funding small businesses.
However, there are two caveats to bear in mind:
- Your business credit card is likely to be tied to your personal credit report, so you should use it with as much caution as you employ with your own cards.
- If your business plan is as sound as you think it is, why won't investors or banks cover that debt? Business credit card rates may, on average, be lower than personal credit card rates, but you may be able to access even cheaper borrowing if you can get a bank or investor in your corner.
3. When you already have too much credit card debt
It's Catch-22. If you have unmanageable credit card debt, you probably are in trouble, and you may feel tempted to borrow your way out. What you actually need is to make a plan to get out of trouble, and that often starts by strictly controlling your credit card use. Help is at hand, and every card statement includes a phone number you can call for advice. But few call. Recently, Gail Cunningham, a spokeswoman for the National Foundation for Credit Counseling, said:
"The low response rate is confusing, particularly during this current economic environment where millions of consumers have serious financial concerns. Consumers are doing themselves a disservice by not taking advantage of this resource, as reviewing their situation with a trained and certified credit counselor could provide solutions they've not considered."
4. When you want a peaceful taxi ride
In some cities, taxi drivers may give you a hard time if you try to use a credit card to pay your fare -- in spite of the fact that their cabs may be festooned with American Express, Discover, MasterCard and Visa stickers. The Bay Citizen suggests that San Francisco may be the latest such city.
Apparently, cab companies have imposed a 5% fee on card transactions, and drivers are understandably resentful over having their incomes "taxed" in this way. The Bay Citizen website has a scary video of the sort of conversation you may expect if you try to flash your plastic in a San Francisco taxi.
Credit card use is good
Don't forget, credit cards are more secure than cash, and they generally provide better legal protections than debit cards or prepaid cards. So using them can be smart. Just don't try to use your credit card to take a taxi to your medical marijuana outlet in San Francisco. It could be a frustrating trip.
This article was reported by Peter Andrew for IndexCreditCards.com.
VIDEO ON MSN MONEY
The only time I pay with plastic is when I am able to pay the balance in full right away.
There is no point in over exending myself for something that is not used for an emergancy.
I use plastic for everything I can to get the points, especially groceries, auto bill pay for my cell phone, and anytime I would ordinarily use my debit card. If I could I would never buy anything with cash or debit and put it all on my plastic.
Of course I also pay off my card in full every month but its nice to get the free stuff with the points.
@ NW ALL MY LIFE
If your statement were true then there would be 2 prices for everything, which in the case of some gas stations this is true. I get what you are saying about the extra percentage, but regardless there is still competition and most companies are competing with rivals where they can't just raise prices across the board by 3%. I'm not saying there isn't a cost, but the advantages outweigh them with regards to: not carrying cash, extra fraud protection, being able to rent cars, online purchases, etc.
The rub is you have to be responsible with your money which most people are not...
"Apparently, cab companies have imposed a 5% fee on card transactions..."
Isn't this against most credit card companies' policies for cardholders? They can offer a discount for cash, but not extra (or a minimum charge) for card transactions ...
Or is this saying that the cab company is charging the taxi driver? Either way, it seems to be going against the card companies' policy, especially since it is ultimately resulting in people being discouraged from using their cards.
@ NY ALL MY Life
Regarding your comment about NO TIME IS A GOOD TIME TO USE CREDIT CARDS... Where to begin. I have been in retail for over 25 years, on all ends of the operation.
Your comment about using a credit for a $100 purchase and the merchant getting $97, while in part is correct, however the credit fee's to the merchant are much higher than 3%, American Express being the worst, that's why so many merchants wont take amex.
Debit cards are another story, the cost for using a debit card is really nothing.
The comment you made about spending that $100, we, the merchant have that cost planned before that product is even on the shelves. It's built in to the overall profit and loss statement of the store, it's the cost of doing business.
There is no way around bank fee's even if you use CASH, the merchant has to pay the bank every time there is a deposit made, and the rates differ if you use a night drop vs making deposits in person, there is a fee for the account, a fee for maintaining the account, a fee for the merchant to be able to wire their money out of the local bank to a bank that the corporate office uses. Cash is no less an expense to the retail than a credit card. At least with a credit card you can plan your expenses.
Retails don't react to the CC fee's and raise the price $3.00. My god, that would drive us crazy if we did that every time someone used a credit card. It's built into the cost of doing business, not per individual purchase.
@ NW ALL MY LIFE
Not sure what impact you think you can have by advising people to use cash. I think the cat is already out of the bag and if you think you can have impact through this forum then you are a bit delusional. There are two sides to this credit coin as income has also raised quite a bit from the 1930's as well as a huge upside in consumerism which has been the largest part of our economy.
Our economy is based on credit so what is the point of your argument? You act as if you are some kind of genius because you can equate inflation to available credit. If you read my post you will understand that I am talking about the advantages for an individual and credit will always be more desirable for a consumer based economy.
So specifically with your argument about using cash, you would have all the disavantages as an individual and be subject to the disadvantages because the majority would be using credit.
And one more thing, credit cards don't "force inflation" if that were true, it would just as bad if not worse when you use cash. That usually costs the merchant much more than a credit card. Not to mention the losses involved with cash, employee thefts etc...
USE your credit cards! When you buy airline tickets with a platinum or black american express, you don't have to pay for checking luggage, and you can get up to $250 from American Express for incidentals you may not have planned on while on that trip. At some point, you have to look out for yourself, the banks aren't and of course the airlines aren't.
Credit Cards and Cash are part of doing business, they don't "Force Inflation", that has to be the strangest argument for not using credit cards I've ever heard.
It's time to ask ourselves what exactly a credit report is and precisely it serves consumers. I've learned so much during these horribly difficult times for so many - and little has to do with any "traditional" advice. For example, ALL information submitted to credit agencies under a social security number ( correct or incorrect by a digit maybe?) or name is simply placed on the individual's (who seems a closest match) is entered by date entry folks - no research, no certaintly, no proof, no checks and balances. It is the individual's legal responsibility to check for, find, and correct errors. I know in the U.S. this posture makes us feel like John Adams for a day, but anyone who has ever been a customer anywhere knows this is impossible to fathom. Banks, retailers, service shops, restaurants are always through error (no fault of their own, of course), negligent training, or fraud "making mistakes" with customer information and service.
Does anyone else remember when the credit rating formula was a huge secret? Basically, we accepted as one of those elevated mathematical thoughts beyond all Americans. Once it was "outed" (thank you Internet !), a new formula was immediately required.
When will MSN Money tackle issues of these types rather than propogating the same old, same old with the not-so-new twist "it's all the customer's responsibility?"
shhhhh, not to loud Mayor Bloomberg might forbid credit card use to buy a sugary drink.
Let's see...you said "The advantage outweighs them". Okay, let's take your theory of it being not too much of a burden on the cost and sales of goods and run a little test shall we.
In 1970 the average cost of a loaf of bread before everyone used plastic was $0.20. Now in 2011 the average cost of a loaf of bread is $2.50. In 1960 the average gallon of gas was $0.32 and now in 2011 the average $3.75.
The Dow Jones and stock market from 1930 to 1980 went from 350 to 850 before the use of plastic credit had spread like wildfire into every corner of the merchant market. From 1980 to 2011 the market has jumped 11,400 points and you think the cost of goods and services have no effect on credit virsus paying cash for what is bought and sold. Seem Working Dad you might want to go back to school and retake remedial math and economics.
Most of the time, no time is a good time to use a credit card. Doesn't everyone understand that using a credit card is causing forced inflation? Just because you get airline miles or cash back rewards is not a good excuse to use a piece of plastic. Yes I have credit cards but RARELY use them only while on vacation outside the US.
Look at your credit card like this; you buy an item for $100. It can be with a Visa or a Mastercard, it doesn't matter. The merchant only receives $97 back from the credit card company. To make up for what the merchant lost, the next time he buys more inventory he has to increase the sale price by the 3% he lost on the previous sale. And this goes on and on. For every sale of merchandise, 3% must be added to make up for plastic use loss. Since everyone complains of the cost of goods going higher and higher, blame yourselves for your use of plastic. There is NO forced inflation on goods and services when you use cash. And if you think 3% sounds bad, American Express charges the merchant 7% for you to use the card and Discover charges the merchant 5%. So next time you use plastic, stop complaining why things just keep getting more and more expensive.
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