Many people do not realize it, but credit card companies charge merchants an average of 2.5% or more to receive credit cards. This means that your convenience purchase of $100 will cost the merchant at least $2.50 more than what you are paying. Even if you use a debit card the same fees apply. Meanwhile you’re busy paying an average APR of 15% on that same credit card purchase unless you pay off your card each month.
This essentially means that every time you use your credit card you are costing yourself and the merchant extra money. But the credit card companies have a strict policy forbidding merchants from giving favorable discounts to persons paying cash. This keeps the card companies in business, and encourages you to use your credit cards. As detailed by other articles on this site, using your credit card wisely can save you money.
To make this happen for you even more, try approaching the manager or owner of a store, especially if it is a boutique, and simply ask them if they offer any discount for cash payment. Don’t mention credit cards, and just be casual about it. You’ll be surprised not only at how often merchants will agree to discount purchases for cash, but also at how much they are willing to discount those purchases.
For most of you, a discount of 5% might not seem like much. In fact, I’d be willing to bet that a lot of you wouldn’t even be excited about the $5 it would save you on a $10 purchase. But what if I told you that it wasn’t a savings of $5, but an investment, and that it was actually worth $75? Think about that for a minute.
See, you have no problem spending $100 per month and carrying a card balance that results in a yearly interest payment of $15, but a 5% savings isn’t worth the embarrassment of asking for a discount and paying with cash. Why not? $5 per month works out to $60 per year, plus the $15 you’re already saving that would have been spent on interest. That is $75 per year.
From the perspective of an investor, it is a 75% return on your investment over the course of the year. Now, take a look at the stock market and see if you can find a similar return anywhere out there, year after year. Best of all, because you are paying cash, no tax is applied to $75 you save each year, because from the perspective of the IRS, it isn’t real money. So not only have you saved $75, you’ve also avoided paying interest on those earnings, and are free to invest them in a Roth IRA.
Keep in mind that spending $100 a month is nothing. Most people will be spending more than $1,000 per month on everything from clothing to food, gas, and auto maintenance. Almost every one of these things can be discounted if you apply the right negotiating techniques. The average family can save well over $1,000 per year.
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