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"No Signature" Small Dollar Purchases Add Up Fast
Increasingly credit card companies are making no-signature transactions of less than $25 available to customers to speed up the checkout process in places like pharmacies, movie theaters, fast-food restaurants, and convenience stores.
Consumer groups are alarmed, however, by these quick and easy purchases that have the power to push Americans even farther in debt. The average household in the United States currently has approximately $9,159 in credit card debt, a 76 percent increase over the last ten years.
Daily purchases on credit cards are fine for those who pay their balances each month, said Tim Wyngaard, vice president of lending at Capital Credit Union. "Some people use their credit cards often because of different rewards programs they may be in, but my concern would be that you put a lot of small charges on a credit card and didn't pay them off each month." In addition, multiple small charges on a bill make it more difficult to detect fraudulent charges.
CardWeb.com estimates than in 2006 Visa cardholders will use their cards to buy as much as $60 billion in purchases of $25 or less. Most do not realize that they are probably paying higher prices for using their cards on such low dollar items. Merchants pay fees ranging from 1.8 percent to 2.4 percent for each transaction processed. With small ticket charges on the rise, merchants will pass those fees on to consumers.
Given the potential for small purchases adding up to big balances in the long term and the presence of fees on small dollar purchases, many financial counselors warn that convenient or not, no-signature small ticket transactions just aren't worth the price.
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