Are you a merchant of any kind? Do you sell products or services online as a small business owner or operate a brick-and-mortar store? You need to be prepared to handle credit card processing fees! Many new business owners might not be prepared for the costs involved with credit card processing fees, so it is important to be diligent in your research.
It’s wise to understand what the average credit card processing fees are and how you might be able to save money on your payment processor. The cost of credit card processing fees are dependent on a wide variety of factors, so gaining a better understanding of how payment processing fees work could help you save a significant amount of money.
No matter how you slice it, if you are a small business owner or merchant of any type who wishes to accept credit card payments, you will need to pay for credit card processors. We can help equip you with all the information that you need.
What Is the Average Credit Card Processing Fee?
What your credit card processing fee is depends on a whole host of factors. According to most industry analysts, the average credit card processing fees typically range from 1.5 percent to 3.5 percent for each transaction.
There are three major players when you are figuring out how much you will need to pay in credit card processing fees, including the bank that issues the credit card, the credit card network, and the payment processor.
The four major credit card networks have varying credit card processing fees—American Express, Discover, Mastercard, and Visa. The credit card network American Express tends to have slightly higher average credit card processing fees than the other three major credit card networks.
The Different Types of Credit Card Processing Fees
There isn’t only one type of credit card process fee but rather several different layers of charges. The different types of credit card processing fees that businesses need to cover include interchange fees, payment processing fees, and assessment fees.
Interchange fees can also be referred to as a discount rate or a swipe fee. Interchange fees are paid directly by the business to the credit card issuers. Higher interchange fees tend to be common for card-not-present transactions. These transactions include online purchases due to the increased risk for credit card fraud. The interchange fee can also depend on how much is being charged, the type of card, and the type of business that is being operated.
Payment Processor Fees
Merchants must also pay payment processors to facilitate the payment. Payment processing costs can be broken down into a series of smaller processing fees that are spread out over time. These payment processor fees could include annual and monthly fees, equipment rental fees, statements fees, withdrawal fees, etc.
Assessments fees go to the credit card networks for the credit cards you accept payment from at your business. An assessment fee is necessary for the purchase to take place and be completed. Assessment fees are not charged on a per-transaction basis but instead based on total monthly sales.
Pricing Structures for the Payment Processor
While credit card processing fees can fluctuate depending on the different credit card networks, they can also vary depending on a number of pricing models. Merchants can choose from several different pricing models for their credit card processing fees. Each pricing model functions a little differently, so it is important to know how each one works. You can choose which one works best for your business’s unique needs.
Here is how each pricing model works:
Flat-rate pricing is the most straightforward of the pricing models. With the flat-rate pricing model, the payment processor will charge the merchant a fixed percentage of every transaction in addition to a small flat fee per transaction fee. This flat fee typically falls between $0.20 and $0.30. The flat-rate pricing model makes it easy for merchants to anticipate how much their credit card processing fees are going to be.
Tiered pricing assigns different processing fees on transactions according to several tiers or buckets. Certain transactions might be charged a lower rate while others might have higher processing fees. This type of pricing model could work the best for businesses that process the most transactions within the lowest-rated tier.
Businesses with interchange plus pricing cover the interchange rate on each and every transaction plus extra interchange fees. These add-on fees could be a percentage per transaction or a flat fee per transaction.
How Credit Cards Work
Now that we know in-depth how merchants process credit card payments, let’s discuss credit cards from the consumer’s perspective. Credit cards are probably the most popular lending product in the United States. Credit cards are revolving credit accounts with a card which allows you to spend directly from your credit line for in-store and online purchases. A revolving account means that the balance can be paid down and respent.
The problem with credit cards is that they are so incredibly easy to use and accessible to almost everyone. Because of this, it can be extremely easy to find yourself in a problematic amount of credit card debt that can become challenging to get out of.
How To Tell When You Have Too Much Credit Card Debt
Do you find yourself in a position where you suspect your credit card debt has become too great? It is important to fix your financial situation as quickly as possible. Once credit card debt begins to get out of hand, it can become problematic very easily.
Here are some important signs to watch out for when it comes to your credit card debt:
You Have a High Debt-to-Income Ratio
If you have a high debt-to-income ratio, you have far too much debt. Your debt-to-income ratio compares your overall monthly debt payments to your monthly income. A high ratio will mean that a substantial portion of your budget is spent on credit card payments. Debt payments should not take up too large of a percentage of the money you make in a month.
Your Credit Utilization is Too High
Your credit utilization plays a major role in the calculation of your credit score but it also is a great indicator of having too much debt. The credit utilization ratio contrasts your available credit with your overall credit limit. A high credit utilization rate will mean that you have very little available credit, and your credit card debt is too much and should be reduced. A good utilization rate to aim for is 30% or below.
You Can’t Afford Your Minimum Payments
When credit card debt gets to the point where you can barely afford to pay just the minimum payments on all your credit card bills, that is a major red flag. It is best to avoid paying only the minimum payments to stay on top of your debt. If you are now struggling to pay your minimums every month, it is time to reduce your credit card debt as much as you can.
Your Interest Charges Are Costly
Another sure sign that your debt is becoming out of control is extremely high interest charges every month. Credit cards tend to have pretty high interest rates overall but it is also important to remember that they also have variable interest rates. Variable rates can increase further over time. When a borrower is too deep in credit card debt, it is not at all unusual for them to have interest charges so high every month that the minimum payments do absolutely nothing to decrease their balance. These situations typically call for an aggressive approach to paying off credit card debt.
How to Aggressively Pay off Credit Card Debt
To pay off credit card debt quickly, it is crucial that you be prepared to make sacrifices to be successful. The goal of aggressive methods for paying off debt is to allocate as much money as you possibly can from your monthly budget towards paying down your credit card balances. You can try canceling some subscriptions, limiting eating out, or cutting down on your online purchases.
Once you cut expenses, you can redirect all of that money towards your credit card balances to see how quickly you can pay them off. We recommend targeting all high-interest debt while you do this, including bad credit loans and cash advances. While you do this, you will need to stop using credit altogether to have the biggest impact. It is wise to have an emergency fund in place when you begin paying off your debt, as you don’t want to have to utilize your credit cards to handle unexpected expenses, as that could cause you to lose the progress you’ve made.
Average Credit Card Processing Fees and Costs in 2022 | The Ascent
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