When Considering Reward Cards, The Best “Reward” is Avoiding Debt Altogether

With the rebound of the credit card industry in full swing for 2011, more and more credit cards are being made available to consumers—often via aggressive tactics—than in quite some time. And amid these plentiful offers for plastic there come enticing rewards of all types, with a litany of merits for the cautious consumer and just as many drawbacks for average Americans attempting to get out (and stay out) of debt.

Along with this trend comes a study from the Federal Reserve Bank of Chicago, revealing that holders of cashback reward cards, in particular, are more willing to assume and carry higher debt loads. This is non-news to you, if you represent a minority of Americans who are diligent about keeping up with payments; and if so, these reward cards have their place, providing cash back through checks or credit that appears on a statement.  But, for the rest of us, like all types of plastic, these cards simply mean more incentivized debt, triggering us to spend more and carry more on our balances, in return for lost or diminishing plastic “prizes.”

According to WalletPop, the Chicago Fed's research showed that, “holders of reward cards spend more on those cards. That's not a bad thing, in and of itself; it's certainly possible that cardholders are motivated by the prospect of earning rewards to shift more of their cash or debit spending onto the card. In other words, they're spending money they would have been spending anyway.

However, there's more to it than that: The agency also found that cardholders rack up more debt, too. According to the Chicago Fed's research, cashback cardholders earned an average reward of $25 a month. Sounds good, right? Not so fast. They also found that spending increases by $79 a month, and debt spikes by $191 per month for the first three months consumers have their cards.

‘It's easy enough to lose sight of how much you're spending on a credit card when you're not going for a reward," Gerri Detweiler, personal finance expert for Credit.com, tells WalletPop. When the prospect of rewards comes into play, "There's an even greater tendency to spend more than you should," she says. "Psychologically, there's a justification that's going on in your mind.’”

To avoid the pitfalls and pratfalls of the “low-return-for-rewards” debt race 2011, it’s vital to remain diligent when spending, acknowledging the reasons you’re buying an item in the first place. If you’re using a recession era mindset, focusing on “need,” instead of “want,” paired with the ability to spend each month within your means such that the balance is paid down before interest accrues, then rewards do come from using these cards. But, be realistic: not only do card companies make more money off your balances than they lose from lending you so-called “rewards,” but also buying just to receive the rewards means spending for spending’s sake—a no-no in the new economy.

Remember, as Martha White of WalletPop so eloquently puts it, “The best ‘reward’ you can give yourself is avoiding debt in the first place.”

If you are wondering how to reduce your debt—credit, debit or otherwise—and get back on track, knowing a qualified bankruptcy attorney can also help you to conquer your creditors and face your financial fears, yielding the right kinds of support, information and insights—at a low cost— for a viable and secure future beyond all of the ill-promised plastic “rewards.” The bankruptcy attorneys at the Law Offices of John T. Orcutt offer a totally FREE debt consultation and now, more than ever, it’s time to take them up on their offer. Just call toll free to +1-833-627-0115, or during the off hours, you can make your own appointment right online at www.billsbills.com. Simply click on the yellow “FREE Consultation Now” button.