As per the new study conducted by the Fed Reserve Bank of Chicago, the ones who possess Cash back reward cards have a general tendency to get into higher debt. For those diligent customers, who are prompt in their payment habits, these reward cards have a place since they help earn cash back through a check or through a statement credit. Card companies seem to have withdrawn a couple of years ago and are not so aggressive in their promotional offer to attract customers. After having recovered from the recession, Americans still feel that Cash back rewards are a good deal. But, there is also the flipside the use of reward cards. These cards urge customers to spend more and thereby getting them into bigger debts.
As per the Fed Reserve Bank of Chicago, the ones who hold reward cards have a tendency to spend more, and that by itself, is not a bad thing. It is quite possible that cardholders are eager to earn rewards and are hence shifting more money or debit spending to these rewards cards. According to that logic, they are just spending the money that they would have spent anyways.
There is actually much more to it than one would assume, as cardholders are racking up huge debts on their cards. As per the research, Cash back cardholders have each earned a reward of approximately $25 per month while spending has increased by $79 per month. The spikes in debts were during the first three months.
When there is no reward on the card itself, it is easy to lose track of the spending, on the other hand however, if there is offered, there is greater urge to spend than you normally would. In your mind, the spending is justified psychologically, states Gerri Detweiler, Personal Finance Expert at credit.com. In order to stay away from the rewards-induced debt trap, always be conscious of how much you spend. First, question yourself if you would still be buying something, if there was no reward attached. One must always remember, that the card companies make more money out of the debt that you incur, than the rewards you receive. In essence, the best reward that you could give yourself, is to avoid getting into debt, in the first place.