Credit-Card Debt Nears $1 Trillion as Banks Push Plastic
wsj.com
wsj.com
I typically have an outstanding balance in the 3-4 figures on my credit card because I pay for rent, gas, and airline tickets with credit. However, it gets paid off every month. I guess that's technically debt, but it's not problematic or anything...
I feel like the majority of credit card debt is the type of "debt" that I incur every month.
Average credit card debt per U.S. adult, excluding zero-balance cards and store cards: $5,232.43
Average debt per credit card that usually carries a balance: $7,494.44
Average number of cards held by cardholders - bankcards: 2.24
Average debt per credit card that doesn't usually carry a balance: $1,128.44
http://www.creditcards.com/credit-card-news/credit-card-indu...
To settle the question you'd really need to know how many people carry a balance.
Regardless, I think US citizens are carrying way too much debt and...one day, this musical chairs dance will come to a stop. :/
The right, most informative conclusion about one $10k balance and 9 $0 balances is that "almost everyone in this group carries no balances, but one carries unmanageable debt", not "the average credit card debt is a manageable but significant $1000".
Statistics guarantees they are guaranteed to be high, not low. Medians and top/bottom percentiles would be more informative.
Source: have moved a _lot_ of credit cards through SEM.
One thing I think we can all agree on is that American's are deep into debt and it's not looking good. :/
That is amazing and terrifying.
And honestly both averages should be presented together, paints a terrifying picture
Take [0,2,100]: average is 34, but median is 2.
The average of a list of numbers is the value that minimizes the sum of squared difference to each value, sum([squared(mean - x) for x in list])
They're both summary statistics in that they're single numbers used to describe a dataset, but a median is not a "kind of average." The mean is the mean and nothing else.
"Average: a number expressing the central or typical value in a set of data, in particular the mode, median, or (most commonly) the mean, which is calculated by dividing the sum of the values in the set by their number." -- Google
There's a bunch of means (arithmetic, geometric, and harmonic, for instance), and they are all (as well as median and mode) averages.
Though, usually when people say "mean" without further specifics they mean the "arithmetic mean", and usually when they say "average" without further specifics they also mean "arithmetic mean" (though "median" is also fairly common, and "mode" isn't that uncommon.)
They say the average US household has $15,762 of Credit Card debt.[0] (that's disputed it could be from 5K to 15K depending on what numbers you believe) [1]
With an average rate of 15.07%[2]
Which works out to something like a minimum payment of $600 a month with $188 of it going to interest.
The Average US consumer is not just tapped out but actively being strangled by debt.
"47: The percentage of Americans who can’t pay for an unexpected $400 expense through savings or credit cards"[3]
What this really means is a near majority of the country is on the very brink of bankruptcy one trip to the ER (with insurance) or a tire blowout and down they go.
The terrifying part is that any hint of recession and the ripple effect could take a lot of us down with it.
[0] https://www.nerdwallet.com/blog/credit-card-data/average-cre... [1] http://www.creditcards.com/credit-card-news/images/infograph... [2] http://www.creditcards.com/credit-card-news/interest-rate-re... [3] http://www.federalreserve.gov/econresdata/2014-report-econom...
For example, I can get a $20k limit card. It's pretty unlikely that you can get a secured card with a $20k limit.
As for "pay-in-full" folks like you and me, credit card companies could care less. Whenever we pay with plastic, they get processing fees.
When you see that beside a $2000 or $3000 balance, it paints a pretty clear picture of what paying the minimum is doing for you. I think the only way it could be improved is by adding in how much interest you'll pay over that time period.
Only paying the minimum will certainly result in paying a large amount of interest.
Then come the vultures. Consolidation loans, payday loans, etc.
The way banks make money on those payments is the way any other interest loan payment works - you'll eventually pay what you owe but by the time you're done you paid the original debt + interest.
Yea 'CC Companies' is not the most accurate term, but when someone uses that term in a casual conversation I typically know what they mean :)
It usually says something like: On your $1000 balance, paying only the minimum will take 7.5 years to pay off the balance and you will pay a total of $3500. Pay $35/mo and will pay off your balance in 3 years and pay a total of $1500.
The issue isn't predatory lending by credit cards (necessarily anymore), it is our obsession with having material goods and "keeping up with the Joneses"... who are also in debt up to their eyeballs.
So, in my mind, it is just a race to the bottom (of your lifetime bank account).
Some people pay off their full balance every month without fail and would never consider carrying a balance.
Others have never paid their full balance. They see the "minimum payment" and think it's a great deal.
I find this to be extremely worrying... especially considering the average college graduate starts working with $25,000 in student loans.
Outstanding balances reached nearly $952 billion in the first quarter, ..."
This seems to imply that, by "keep a balance," they mean not paying your bill off every month.
Still, putting only rent on a CC = 1k+/mo where I live.
This is doubtful. The average U.S. household carries about $15k in credit card debt.
FWIW in months when I buy expensive plane tickets or make reimbursed purchases I skip paying rent with the CC.
Bank transfers really ought to be easier to do than they are.
They eat the couple percent in transaction fees. In return, almost all of their tenants now pay online and instead of the property manager chasing people down for money, everyone generally pays on time (or, in a number of cases, early).
Depending on your priorities, "not having to chase people down for money every month" might be worth paying the $500/mo.
I do not miss mailing checks in, and I do not wish to ever do it again.
My last apartment had the same option, so I think it's pretty common.
What I meant to ask was, "How do you pay rent with credit (without paying $30-40 each month for the privilege)?"
Love it, as it's how I get a ton of miles / points for money I'm already spending anyway.
Like Amex SPG costs $157 for 5000 points. If I pay my $1500 rent via my Amex but with an additional $50 premium, after 3 months, I have 4500 points for $150, versus being able to purchase 5k points for $157. If I spend $525, I can get 20k points. So it's better for this particular card to put aside the extra fees paid in rent then purchase the points in bulk at discount than earning the points directly.
Ideally, there's a landlord that doesn't assess an extra 2-3%, then it would totally be worth charging rent on a card.
In fact, I just used 75k of them for a first class ticket to Asia. At a "purchase cost" of $600—so I'd call that a sweet deal.
I have been thinking a lot lately on how the credit card rewards/payback and fee split works - I dislike it.
When I turned 18, I got my first credit card. I asked my father "good idea?" and he said yea, good to build up credit. Ok then. A week later, my new card with a whopping limit of $750. Never having experienced not paying with cash I had, it gave me an odd thrill and I went out to eat with my friends and joked "It's like free money!" And despite knowing better, it certainly felt like free money because the numbers didn't change in my bank account. Sure I knew I'd have to pay it off, but whatever, I'd do that later.
Now, like all good citizens, I spent the first couple years always paying off the balance I owed. Nor was it long before credit card offers came to me and I said "hey good to build up credit" and signed up for them. My next big one had something like $1500 limit and I was 19. Soon enough, I was doing great -- my credit was high & debt low -- looks good for credit.
Well, soon enough I was in Boston going to college and working part-time. One day at work, I got another one of these offers and thought "why not?" This time was special though because it asked me what is your household income -- not my income. Well.. my parents didn't make much but we weren't poor either, so I added together the incomes and said my household income was $150k. I felt a bit mischevious putting it down -- was it the truth? What was going to happen? Would they check to see if I made that much?
No, instead, they were more to happy to oblige and gave me (a 20 y/o) a new credit card with $12,500 limit. Holy shit! I thought to myself, I have a LOT of free money! Over the course of the next 4 years in college, I would eat out whenever I pleased and generally kept my credit under control, but slowly & surely my credit usage was rising. Fast forward a few years after that, and I have a total credit line of about 30k -- all maxed out. Was I being outright financially foolish ordering $100 bottles of Chardonnay at the club? Not at all. Was I being financially negligent ordering whatever small thing came my way that I wanted? Yes -- because I could.
So then you find yourself in deep debt, and what do you do? You start paying the minimum off and then re-using that credit. Do you care so much about paying it off? No that seems like an eternity away, paying the minimum is easier. Do you know it's wrong? Of course. Do you care? Not as much as you should.
This my friends is how you lose at the credit card game and end up just paying fees to bank execs. It can be fun, but I do not recommend.
"Was I being outright financially foolish ordering $100 bottles of Chardonnay at the club? Not at all. Was I being financially negligent ordering whatever small thing came my way that I wanted?"
Usually it is a death by a thousand cuts when it comes to racking up credit card debt. $20 for lunch, $50 for gas, $65 for some clothes, $100 for the electric bill. The problem is that pseudo-necessities like food, gas, entertainment don't have an end and reoccur indefinitely. It becomes really easy to fall into the trap of purchasing 2x $10 meals a day, and it easily becomes $600/mo, while the $200-300/month in groceries that were also purchased with the plan to stop eating out makes for a $800-900+/mo food bill.
Still, when I go through mental phases of not caring/not paying attention, even though I'm paying off my balance and setting aside some savings every month, occasionally I look at my statement and think "holy shit, how did I spend $1500 that month?!"
Usually those are like the months where I bought one semi-pricey thing (under $500 but still not just groceries and bills) plus a load of Amazon or Adafruit or any number of little tools, toys, hobby supplies, lattes, bar tabs, etc.
Still no problems paying my credit card off every month because I've been there and I'm not going back. Still, it's very easy to lose track if you get spoiled and complacent. Sure, it's nice being able to spend a few hundred bucks on supplies every time I want to take on a new project around the house but those things really add up and eat into money I should be saving, investing, or using to pay off that minor college loan earlier.
They're both financially foolish, but I did not rack up credit card debt because of lavish purchases. It was just as ^ says.
Why is that ipso facto financially foolish?
Personally, I have a great time going out with friends and having drinks with them. I like being able to pay for their drinks. I also pay off my bill every month and have a very healthy savings account.
You aren't married so you lied about income as household would only equal you. This is going to be a problem for you in bankruptcy court.
FWIW: This story is not a present tale but one that happened to me. I'm shrewd enough to see my way out of foolishness -- a quality you spare me in your claim that I'll be in bankruptancy court.
We have not yet come to terms with the fact that the overwhelming majority of people outside of a tiny sliver of elites are going to be lucky to afford bare subsistence in the years to come. Credit card debt lets us delay confrontation with the reality that wages have not grown enough, employment is not strong enough for most people in middle-class jobs to live the lives we used to think of as middle class.
Of course you reach for plastic before you stop buying groceries.
Fun fact: Subprime auto loan bonds are in a slow motion trainwreck:
http://money.cnn.com/2016/03/15/investing/subprime-unpaid-au...
http://www.bloomberg.com/news/articles/2016-03-21/this-is-wh...
And if you don't run any debt, it's like having zero body fat in cold climates. No insulation, and any caloric deficit causes much more severe problems.
Nobody said it had to be simple.
Also, isn't the accumulation of body fat the definition of a surplus, rather than a deficit? In both cases, having run a surplus in the past provides protection for when you must run a deficit in the future.
Furthermore, are you suggesting that, a metabolic analogy is more correct than a household-finance analogy?
1) The debt is eclipsed by GDP rise over time. 2) A government ( at least used to ) be able to very slightly weaken its currency to equalize for GDP and population growth. 3) Mild inflation acts to equalize the effects of private debt as well.
I use the metabolic analogy because the risks of no body fat and low body fat are quite different, much as the risks of mild inflation and no inflation - or more accurately, deflation - are quite different.
http://www.theatlantic.com/magazine/archive/2016/05/my-secre...
Do you budget your money out and track every transaction? It sucks to be in that situation, but there are always things you can do to improve it.
It's hard to go bankrupt from this directly because they're careful not to lend you more than you can pay back. It doesn't always work, of course, but they do a decent job of figuring that out.
Note that a lot of medical bankruptcies aren't bankruptcies due to medical bills alone, but are people with insurance who go bankrupt due to a combination of deductibles, additional non-medical expenses related to the illness, and a sudden reduction in their ability to work. Having a bunch of credit card debt instead of a bunch of savings could easily put someone in that situation, so the two probably work together a lot.
Not sure how often they can reclaim the money, and how often they just take the loss for better publicity.
But which would you trust more when something goes wrong and your "card number" racks up thousands of stolen purchases:
1) credit card dispute/chargeback process that is mandated by law
2) the promise from your bank that, on their good will, they will fix things
Not only that, but thousands of dollars on your credit card is "loaned" to you by the bank, the money's not out of pocket on you yet.
However, thousands of dollars of stolen debit card transactions means your bank account is thousands of dollars lower immediately, and you have to hope your banks promise to give it back will actually pan out.
If someone steals your credit card, you can say "Not my money! That's your problem" while a debit card is the opposite. Plus banks employ people to fix fraud while you (probably) don't.
Sure a bank will eventually rectify debit fraud but in the mean time, why would they care? It isn't their money.
1) [..] mandated by law
2) the promise [..] on their good will
Well duh. But what you're arguing is that lack of regulation makes debit cards in the US a liability, not that debit cards are a bad idea in general.
It corrupts everyone and everything down to each penny, on every transaction. Everyone along the line where the money flows is incentivised to get you a) hooked on credit cards and b) on paying by credit cards. The issuer, the merchant, the card institute, the processors in between and even the buyer get's a cut from the exorbitant high fees.
As for the "free money" argument, research [1] suggests that humans tend to spend more when using credit / debit cards than they do when using cash.
[1] https://www.psychologytoday.com/blog/ulterior-motives/201001...
The gains on higher fees are then split between the merchant and the processor.
Edit: Yes I think the fees are exorbitant - hence some lawsuits in the US and some EU countries with regulated, lower interchange fees.
That's an annoying situation and (is entirely optional). But it's also a relative outlier and is definitely insufficient evidence to claim that the whole system is irreversibly corrupt.
I'd love to know how I'm supposedly being "corrupted." I've never once carried a balance, but have flown thousands of miles for free.
On the other hand, if you did not fly thousands of miles using miles and points, and you still paid the same price as the cardholders, then you helped pay for those who did fly around for free.
For example, I willingly pay a 1.8% fee to pay my taxes via a credit card. I end up getting back 5-10% in bonuses.
Yes, corruption might be a too strong word here. The way I see the whole rewards system is that the users actually got paid in order to use their payment method again and again. They pay you. They bribe you, the incentivse you and eventually, it corrupts the way you're spending.
Not only are credit cards more robust at consumer protection, but credit cards have 1% to 5% back deals. When I purchase gasoline, I get 3% back for example. As long as I pay back my credit cards every month, I never pay interest. AND I get the 3% back on gasoline and 2% back on groceries, 1% back on everything else.
There is almost no reason to use debit cards in the US. Use credit but pay it off.
While I believe my credit union would reimburse me if someone were to steal my debit card information and use it to make a bunch of crazy charges, that would also mean that I could literally have no access to cash for some period of time. This isn't a fear with my credit card since fraud never becomes "real" to me - I've never had to pay back fraudulent charges.
Second, I pay a nominal fee ($75/year) for an American Express card that offers higher cash back rates on the purchases that happen to make up the bulk of my expenses (6% back at grocery stores!). Without that $75 fee, cash back would be 3% at grocery stores...still pretty good.
I have never carried a balance on my credit cards - I set the closing dates for all my cards to be the first of the month, and I set an automatic payment for the balance of the card to be processed on the second. Clearly this is something most consumers don't do, but it has worked well for us.
If you're good with money, debit cards are a waste for the most part. You can get credit cards that pay you at least 1-1.5% for every purchase. They're basically paying you to spend your money.
If you're bad with money, steer clear of credit and stick to debit though.
Interest on a credit card can be bad but years ago I had a bank pull some really shady stuff to hit me with hundreds in overdraft fees on a handful of minor purchases.
Essentially, I was living just about hand-to-mouth as a young underemployed guy and when payday rolled around, I'd go to deposit my paycheck and then over the next couple of days, I'd check my balance online to see when it cleared. Once the funds showed up as available, I'd head out and put gas in the car, buy groceries, pay rent, maybe grab a 6-pack (again, naive, irresponsible guy) and whatever other little things I'd been holding off on buying until I got paid.
Well, fast forward a week or so and it's almost Christmas. The boss gives everyone a $100 Christmas bonus and I'm thrilled because I never have enough money to go around. I go to the bank, hand the teller the check, and when I get the receipt? Maybe $10 or so balance.
Turns out that when I deposited that paycheck several days ago and waited for it to clear before making several small purchases, the bank messed with the dates and times, essentially pulling the credit, running the debits, incurring many $35 overdraft fees, then applying the deposit after the fact.
The kicker was that the website now showed this new timeline and I didn't have anything printed out to show for it. Not only did they drain my bank account but they took my Christmas bonus to pay the bogus charges.
No amount of speaking with staff did any good. They told me I needed to be better at balancing my checkbook. It was right around then that I learned the real way it's really expensive to be broke. If you don't have credit or some sort of savings to act as a buffer, banks will find all sorts of ways to penalize you and take advantage of you.
Eventually got my shit together. Went back to college to finish my degree, paid with a loan, now all good with a modest salary, only $12k or so of college debt, no car payment, and enough of an emergency fund that I could pay rent and live frugally for a year without employment if I had to.
Sorry for the long rant. Haven't told that story in years and hadn't thought about it in as long. But once I started thinking about it, it all came back to me.
Combined with the general volatility in how long it takes funds to clear when deposited (way longer than it should...), and unpredictability on how and when charges will be computed on your debit account, it's just smarter to use the float that credit cards offer, even if there were no rewards.
Credit cards are great if you can be responsible with them. That's a big "if." For many people they are a disaster.
Of course there are debit cards. How do you think people use ATMs in the United States?
Unless you have psychological issues, it doesn't make sense to use a debit card for purchases though. Credit cards give 2% cash back, an interest-free loan for 30 days, and great consumer protections.
Another option is to use one credit card, and only use it for bills/budgeted expenses and NOTHING more. Then just pay it off every month. This will prevent your real money from being being stolen/frozen in the event of your card number being lost/skimmed, and it can also gain you cash back and/or rewards.
Unlike my credit card companies who refuse to get with the program and show me auths and captures in somewhat real time. Having to wait days to find out what went through is such a joke. I thought cards were supposed to be easier... if I spent $10 in cash I know I've spent $10, with a CC I wait 3 days and find out butterfingers misplaced the decimal and I'm left trying to hunt down $1000.00 that's now on my account while I'm miles away.
And there you go… you have a credit card with all the benefits associated with that; but you're completely safe and don't run the risk of going into debt. If you're spending too fast, or if things go wrong, you can immediately close the credit card and pay it off in full with the amount in the savings account.
It's easier to disavow spurious credit card purchases than somehow get your funds back from bad debit transactions, let alone the fees when your fixed expenses don't clear because some asshole stole your money.
Wouldn't that feel like a debit card too?
[1] http://blogs.wsj.com/economics/2015/04/07/americans-pull-bac...
"Because many creditworthy consumers are still cautious about spending, lenders are turning more aggressively to subprime borrowers. Lenders issued some 10.6 million general-purpose credit cards to subprime borrowers last year, up 25% from 2014 and the highest level since 2007, according to Equifax."
"Overall, lenders gave out more than 104 million general-purpose and store credit cards in 2015, up 6.5% from a year earlier and up 47% from the bottom in 2010, according to Equifax."
We could hypothesize that credit card debt won't be as massive as mortgage debt and thus may not cause catastrophic events. However, on the flip side there is little to no collateral in credit card debt that a creditor would get in return of defaulting on your credit loan.
The more I look at credit debt, student loan debt, and fairly recently CDO's (Collateralized Debt Obligation) that banks are doing again we are setting ourselves up for failure again.
Anyone have any thoughts on all this?
The subprime mortgages propelled into the prime markets only after a major insurer with a strong balance sheet announced that they will make their investors whole in an [unlikely] event of a default, which led to ratings' agencies decision to assign the AAA rating.
Without AAA, such securities are relegated to their own little corner of the market, which sooner or later faces capital constraints.
If you give a subprime borrower a mortgage and the market continues to go up, they can pay it back with the gains from selling the house. On paper, it looks like everybody won.
With credit cards however, the owner eventually does have to pay the debt back. If you're too loose with handing out credit cards, it's easy to end up with a bunch of people defaulting.
Plus, the scales are an order of magnitude different. Moreover, credit card debt isn't tied to the rest of the economy as heavily as mortgages are.
I'm single but will sometimes have a debt of $10k in a month but never carry any over.
It is literally impossible for those families to pay off a $12k balance every month. Factor in that you often can't pay rent, mortgage or car payments from a credit card and it's not even close.
(The fact that you save up and spend and then pay 10-12k in one month is irrelevant. Because of aggregation, what's relevant is your average month).
javascript:(function(){location.replace('http://www.google.com/search?q='+document.URL)})()Although this is definitely not how people usually use it.
The entire spirit of the phrase is to denote how little someone cares about something. So if you say they could care less, that implies they care a tiny amount about it and CHOOSE to care that much. I don't see how that could ever replace the original phrase and still make sense.
"I could care less! (Yet here we are discussing it to death.)" or "They could care less... (less than we do / less than all this discussion suggests they might care)"
^ I think that's essentially how most people use it, mechanically, without thinking about it as much.
When I say it, I usually either mean it that way, or something along the lines of "I could care less! (And I wish I did!)"
That is the dumbest thing I have ever read.
Please don't post things like this to HN. (Broken windows aren't allowed, even on the bikeshed.)
Edit: This post is receiving a fair amount of downvoting. I would be very interested to hear arguments that are not from my own viewpoint.
However, language is not math, and adhering and enforcing rigid definitions might pave the path to newspeak. So after having thought about it, I regret downvoting you.
I really appreciate your perspective. The internet makes it too easy to "fire and forget." I hadn't even considered my own opinion in the way in which you framed it. Thank you.
Since you're being pedantic, you might want to go back and change that to "weren't" instead of "wasn't," as it is a hypothetical supposition. (And yet, I agree with you.)
(please no one comment on the comma inside the quotes. I think we're at this awkward point in grammar history where we're seeing a transition from "all punctuation must be inside the quotes" to "sometimes it really really doesn't make sense for the punctuation to be inside the quote, especially if you're not quoting a person saying a full phrase.")
In any case, I don't hesitate to put the comma outside the quotes if that makes sense to me, though it's not considered correct in American usage (and I'm in the US). This is one point on which I agree with the Brits; now if we could just get them to change -ise back to -ize :-)
(The "punctuation inside / outside quotes" is something I think about in my writing nearly daily. It's nice to know somebody else thinks about it, too.)
Not to mention, people who regularly pay off their card in full are more able to spend far more than than their credit limit in a given month.
And it is not true that those that regularly pay can spend more than their credit limit. After years of no balance carrying and numerous cards one accumulates a credit limit that would drain their savings whatever it was ($100ks). Unless you think millionaires are the only ones that pay their balance in full. I somehow managed to pay in full when I earned minimum wage.
CC companies are fine with non-balance carriers, because the conversion rate to balance carriers is quite high. A few of us just don't spend what they don't have.
In the UK you'll also be put through collections, which can include attempts to force you to sell a property - if you own one - and/or most of your possessions to repay the debt.
Credit cards may not be secured, but lenders have risk management divisions who make some attempt to estimate default rates.
The biggest problem is the ridiculous rates for the riskiest borrowers. A few cards have an APR of 99.9%, which guarantees a default for anyone on a low income who has to make an unexpected payment for any reason at all.
I walked away from an underwater mortgage on a townhouse. It only caused my dropped my credit score ~100 points, and was eligible for another mortgage after 3 years (My credit card provider didn't blink, and had no problem allowing me to keep a charge card with high five figures of credit available).
The repercussions of credit default are highly overrated.
My HOA would not allow me to rent the townhouse out (too many rentals already), nor could I come up with the $150K to bring the mortgage down to the new fair market value. So, mailed the keys back to the bank and walked away.
Note that this doesn't actually work to reduce your debt everywhere (even everywhere in the US); its basically voluntarily inviting the bank to foreclose, which they usually will do (because if you are abandoning the property and they don't, the longer they go before foreclosure the more likely that, just due to being abandoned, the property will lose more value.) But when they do foreclose, some jurisdictions allow foreclosure deficiencies -- that is, they allow the conversion of the amount of the mortgage debt that the lender doesn't recover in a foreclosure sale to be collected as an unsecured debt.
Err, what a terrible idea. That might work once, sure. Then you're pretty fucked for a long time. The only way to avoid the collections would be to full on declare bankruptcy.
Honestly there's basically no situation in which that's a good idea unless you're actually bankrupt.
Depending on amount owed, this may not be true. Any unsecured default under ~$10k, the only consequences are usually a credit report hit and incessant calls from debt collector call center workers.
Over ~$10k, and yes, you're talking attorneys, judgments, garnishments, etc.
The firm had also tacked on $2,000 in "preparation and legal costs, filing fees". Which is pretty rich for what likely amounted to a mail merge in Word. But it's no coincidence that most collection firms are owned by lawyers.
Those that pay it off entirely every month are the one's being subsidized. It's effectively an interest free loan for 30 days. Plus you get 1-2% back as "rewards". That's what contributes to the ~3% transaction costs for credit cards.