Credit Cards Allow for Smaller Transactions, Lead to More Debt, Payday Loan Applications
By Paul RizzoPayday Loan Writer
Short of cash for coffee or a pack of gum? No problem. Just charge it!
As a recent article in USA Today outlines, credit card companies are doing all they can to help you make such small-ticket purchases as fast as possible.
These companies are increasingly allowing no-signature transactions for purchases of less than $25 at movie theaters, pharmacies, convenience stores and fast-food restaurants. Their goal is to speed up the checkout process and get more people to pay for everyday items with plastic - but the result could be increasing debt and cash loan use instead.
As the amount of small-dollar items charged to cards rises, consumer groups are expressing alarm that the quick-and-easy transactions could push people deeper into debt. Even inexpensive items can add up.
Already, the average U.S. household's credit card balance has risen 76% over the past decade, to $9,159 in 2005, according to CardWeb.com. Makes it little wonder so many individuals are in need of faxless payday loans.
"People should not charge a meal at McDonald's to a credit card unless you're disciplined and paying off the credit card every month," says Ken McEldowney, executive director of Consumer Action in San Francisco.
No industrywide figures are available on small-dollar items charged to plastic. But CardWeb.com estimates consumers this year will use Visa cards to buy $60 billion worth of items that cost less than $25 each, a nearly elevenfold rise from 2000. Reports also state that use of cash advance loans is almost at an all-time high. It's easy to see why.
"Not having to sign is a huge convenience for consumers and a critical element" of the growth of small-dollar purchases on credit cards, says Elizabeth Buse, an executive vice president at Visa.
Merchants, too, benefit from faster no-signature transactions, credit card companies say, because the stores can serve more customers - resulting in higher overall sales.
And "people will spend more if they come in with a card vs. cash," says Gareth Forsey of MasterCard Worldwide (MA).
However, consumers are likely paying higher store prices for the privilege of using plastic. When payments are made with credit cards, merchants must pay banks average fees ranging from 1.8% to 2.4% of each transaction, according to Nilson Report, an industry newsletter.
As the number of small-ticket credit card purchases rises, these processing fees can, in turn, push up the prices of consumer products, says Sam Turner of Favorite Markets, a chain of convenience stores in Tennessee, Alabama and Georgia. It's a cycle that could then lead to no fax payday loan use and more and more money lost.
Still, even for small-dollar items, "You can't stop taking credit cards, because America is in love with them," Turner says. "They're a necessary evil."
