Do Credit Cards Make Everything More Expensive?

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KEY POINTS

  • Credit cards make purchases cost more when interest is accrued.
  • But credit cards increase the cost of goods in a less obvious way.
  • Retailers increase costs for shoppers to cover credit card processing fees.


It's easy to argue that yes, they do.

You're probably aware that if you don't pay off your credit cards on time every month, you'll accrue interest on your purchases. And those interest charges could add up over time, thereby costing you money and making whatever items you purchased more expensive.

But that's not the only way credit cards might cost you money. Consumers routinely pay extra for goods due to none other than widespread credit card usage.

The sneaky way credit cards make everything cost more

Credit card companies are in the business of making money. And they do so not just by collecting interest on carried balances and imposing late fees, but also, charging processing fees.

Processing fees are generally paid by businesses directly. When you swipe a credit card, the merchant in question is charged a percentage of your purchase to have it processed.

Recent research by The Ascent found that total credit card processing fees for merchants range from 1.15% + $0.05 to 3.15% + $0.10 in interchange fees plus an additional 0.14% to 0.17% in assessment fees. And while those might seem like fairly small percentages, they can add up over the course of millions of transactions each year.

Now we just said that merchants generally cover credit card fees and write that off as the cost of doing business. But that doesn't mean that you, as a consumer, don't pay the price.

When merchants set prices, they take different factors into account. These include the cost of procuring their goods, the cost of the rent they pay to lease commercial space, the labor costs they face to staff their businesses, and so forth.

Well, one of the costs merchants account for when setting prices is credit card processing fees. And the more those fees cost, the more merchants are likely to increase their prices to compensate.

As such, credit cards do secretly make everything more expensive. They just do it in a roundabout way that may not be immediately obvious.

Should you stop using credit cards?

If everyone were to stop using credit cards, then perhaps the cost of goods would go down. But at this point, getting rid of credit cards as a matter of course just isn't a practical thing for consumers to do.

Many of us are used to functioning in a cashless manner, and businesses would likely incur other costs if they were to stop using credit cards and only accept cash. For example, it would probably require extra labor to sort and account for cash payments in the context of businesses that do hundreds of transactions in a single day, like supermarkets.

Plus, credit cards do have their perks. Using one could mean snagging cash back or other rewards on the items you're purchasing. And you may get added purchase protection if you use a credit card, whereas if you pay cash, you can't dispute a charge if a merchant sells you something defective.

So all told, we shouldn't write off credit cards as completely evil. But we should recognize that they drive up the cost of goods one way or another.

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