Cash back credit cards use rewards to increase spending on cards

Cash back credit cards use rewards to attract customers and thereby increase spending. However, one must exercise caution while using these reward cards. Mailboxes were clogged with holiday cards last month and it shouldn't come as surprise if credit card offers replace them now. The busiest month for credit card applications is the month of January where customers are flooded with offers from issuers especially on cash back offers. Card companies want their business and will do anything in their capacity to get business from their customers and lure them away from other card companies. There are plenty of good deals available, it is important however, that you make a comparison of the offers and find the best rate possible as well as the best rewards.

The mail that is received by customers has gone up significantly since the last year as consumers in the US received approximately 1.2 billion offers from card companies in the 3rd quarter of 2010, in comparison to 391 million during the 3rd quarter of 2009. Around eight out of ten cards (compared to six out of ten in 2008) are those of reward cards that promote points, miles, cash back etc.

The most popular of them has been the cash back offers on purchases, as consumers get to save more while spending less. These cash back credit card offers have accounted for at least 41% of all the rewards offers during the 3rd quarter of 2010 in comparison to 28% last year. As people started getting more and more frugal with their spending habits, issuers have started promoting these rewards that give better returns on items of everyday use such as groceries. Now, there seems to be more focus on groceries in their promotional offers when compared to the offers last year.

Card companies are aware of the enormous impact that rewards have in attracting cardholders and increasing usage. While these are all nice bonus points for customers, increased spending habits might just result in more debts and that is something that consumers need cautious about.

As per the Chicago Federal Reserve, cash back rewards are an effective way to increase spending and issuers are assured that the customers will have more debts accumulated with them. It has been noted that as the average spending increased each month, cardholders reduced their payments within the first three months.

Bryant Park

Bryant Park is a financial consultant for one of the companies listed on Wall Street. He writes on a variety of topics ranging from credit cards to different loans that can be availed by consumers. He holds a bachelor degree in Financial Services from Dartmouth College.