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Posted: 6:00 a.m. Wednesday, Jan. 30, 2013

Why you should pay with credit card even if you face a surcharge

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By Clark Howard


You may have heard about the new credit card use surcharge going into effect. Well, I have a very contrarian stance on the issue. In fact, there are several times when I'll be willing to pay a higher price just to use my credit card.

Beginning Sunday (1/27), merchants got the OK to pass along a 4% credit card use surcharge when you pay with plastic. This provision only applies to Visa and MasterCard; American Express is exempt.

Similarly exempt are states that expressly prohibit the surcharge. They include California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas.

And debit card is being treated as cash, not credit, for the purposes of this new change that is the result of a settlement between merchants and the banking industry.

So if you're a traditional credit card customer not in one of those states I just mentioned, you could potentially see merchants passing along a 4% surcharge to you.

Now, we are not seeing widespread adoption of this yet. There's no known list of merchants who are doing this. But slowly, in dribs and drabs, you'll see more of this.

When does it make sense to actually pay more money by paying with a credit card? In at least two instances I can think of.

First, I will pay by credit card when I'm shopping online. Because you're buying on faith. If you pay that money and don't get the merchandise or it's misrepresented, you have no rights when you pay by cash or debit. So a credit card is a cheap insurance policy, allowing you to dispute the charge if there's a problem.

Second, when buying travel, if I worry about the solvency of the company, like I do with cruises during economic downturns, I will pay with a credit card.

As for reward cards, you have to have a great reward program to overcome paying a potential credit card use surcharge.

Why am I not more upset about this new change with the surcharge?

Because I believe it will encourage more people to pay with cash, which is a good thing.

Plus, if customers revolt and the banking industry loses its charge volume, then the free market comes into play. The banks will have no choice but to lower the fees they're charging merchants for credit card transactions. And you will ultimately get the savings.

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