Credit cards are a convenient way to pay for purchases, offering benefits like rewards points, cash back, and travel perks. However, with many businesses now passing along credit card processing fees to customers, you might wonder if paying those extra surcharges is worth it.
Could the rewards outweigh the cost? This blog will help you explore when paying credit card surcharges makes sense, when it doesn’t, and how to make smarter decisions about your payment methods.
What Are Credit Card Surcharges?
A credit card surcharge is an additional fee that businesses charge customers for using a credit card. These surcharges are designed to help businesses cover the costs of credit card processing fees, which typically range between 2% to 4% of the transaction amount.
For example, if you pay $100 with a credit card and the business adds a 3% surcharge, your total will be $103. While the practice of imposing surcharges is legal in most states, some states (like Connecticut, Massachusetts, and New York) have restrictions or outright bans on adding these fees. Businesses that apply surcharges are required to disclose them clearly before you make your purchase.
When Paying Credit Card Surcharges Might Be Worth It
There are specific scenarios where paying a surcharge might make sense. Here are four situations where the rewards or benefits might outweigh the fee:
1. The Reward Points Exceed the Cost
If your credit card offers rewards that are more valuable than the surcharge, it can be worth it. For instance:
- A 2% surcharge on a $100 restaurant bill adds $2 to the total.
- If you earn 4X points on dining with a card like the Amex Gold Card, and those points are valued at $0.02 each, you’ll receive $8 worth of rewards.
You gain $6 in value even after factoring in the surcharge. This strategy works particularly well for travel, dining, and premium cards that offer high reward rates in specific spending categories.
2. Hitting a Welcome Bonus
Many rewards cards offer lucrative sign-up bonuses, such as earning 50,000 points after spending $3,000 in three months. If you’re close to meeting the spending requirement, paying a small surcharge can help you reach the goal in time. For example, paying a $50 surcharge to earn a 50,000-point bonus worth $500 is a justifiable trade-off.
3. Small Purchases with Minimal Fees
If the purchase amount is small, the surcharge will also be relatively low. For example, a 2% fee on a $5 cup of coffee only costs $0.10. The convenience of using a credit card might outweigh the hassle of carrying cash, and you still earn a small amount of rewards.
4. Extra Security for Big-Ticket Purchases
Credit cards offer unique protections like fraud liability, extended warranties, and purchase protection. For large purchases, such as electronics or travel bookings, paying the surcharge may be worth it for the added security and peace of mind. For example, if your luggage gets lost during a trip booked with a credit card, some card issuers will reimburse you for replacement items.
Quick Tip:
Before choosing a card for large purchases, check your cardholder benefits. Some cards offer specific perks like return protection or trip cancellation insurance, which debit cards or cash payments don’t provide.
When You Should Avoid Paying Surcharges
While there are cases where paying surcharges makes sense, here are situations where it’s better to avoid them:
1. Low Rewards Compared to the Fee
If your credit card only offers 1% cash back, it’s usually not worth paying a 2%–4% surcharge. For example, if you use a card with 1% back on a $200 purchase and the surcharge is 3%, you’re paying $6 in fees to earn only $2 in rewards. Not exactly a winning formula.
2. Multiple Small Transactions Add Up
While a $0.10 fee on a coffee may seem insignificant, small surcharges across frequent transactions can add up quickly. Over time, these extra costs could reduce the value of your rewards program.
3. When Cash or Debit Works Just As Well
If paying with cash or a debit card doesn’t compromise convenience, skipping the surcharge might be the better option. Some debit cards, like Discover Cashback Debit, even offer minimal rewards of their own without adding a fee.
How to Avoid Credit Card Surcharges
If the surcharge doesn’t seem worth paying, here are some steps you can take to avoid it altogether:
- Use Cash or a Debit Card: Most businesses impose surcharges only on credit card payments, not cash or debit card transactions.
- Choose Surcharge-Free Merchants: Some businesses don’t pass along credit card processing fees to customers, so it’s worth seeking them out.
- Negotiate the Fee: If making a high-value purchase (like furniture or appliances), consider asking the merchant to waive the surcharge.
- Look for Alternative Payment Methods: Some merchants accept payment apps (like Venmo or Zelle) or financing options that bypass credit card surcharges entirely.
Pro Tip:
If you prefer tracking expenses digitally, use budgeting apps like Quicken Simplifi to stay organized when using cash payments.
Smart Strategies to Maximize Credit Card Rewards
Here are some practical tips to ensure you’re getting the most value from your credit card spending:
- Analyze the Effective Cost of Surcharges: Use a rewards calculator to weigh the rewards earned against the surcharge cost on each transaction.
- Consolidate High-Value Purchases: Pay strategically by using your credit card for transactions with the best reward-to-fee ratio.
- Monitor Surcharge Policies Regularly: Businesses may change surcharge rates over time, so stay informed before making significant purchases.
- Pick the Right Card: Choose credit cards with category-specific rewards (like dining or travel) that align with your spending habits for better value.
Final Thoughts: Are Credit Card Surcharges Worth It?
Whether or not to pay credit card surcharges ultimately depends on the value you place on convenience, rewards, and added protections. If your rewards significantly outweigh the fee or you need the additional security provided by credit cards, paying the surcharge might be worth it.
However, for lower rewards or situations where other payment options are equally convenient, it’s usually better to skip the fee. To make the smartest spending decisions, always evaluate the trade-offs based on your personal goals and financial habits!