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Credit cards are a lucrative affair and often a bit of a gamble. There are so many different kinds of cards in the market it becomes difficult for the consumer to always be able to pick out the best of the lot. Rewards credit cards have many different ways of working. Some of them are for target groups like businesspeople, some for the big spenders and some for the families. When many people sign up for credit cards with rewards they do not automatically get all that it entails.
When people earn rewards points, they are paying for it, through various fees. In the world of credit cards there is no such concept as free money. People pay through higher interest rates, additional fees, and also through what is called by economists as purchase acceleration. When a customer gets an incentive to sign up for credit card rewards they do so immediately attracted by the money on offer. They see the chance to earn the free goods just by using it for the first time and then when they see an opportunity to earn points they shop with greater enthusiasm to achieve those points faster.
What happens when people get closer to gaining reward points is that they end up spending on things they really do not need. They may end up shopping for a Prada purse or splurge on a dinner at a participating restaurant to add up the points when it would probably be much cheaper to purchase the reward with your own money. Here you are ending up paying a whole lot more for what is definitely worth less. In order to speed up the purchases made by customers some banks also send alerts via email and phone to encourage customers to get closer to redeeming a certain reward. There are records of statistical data that clearly indicate that customers on the verge of gaining a reward do tend to spend more and spend faster to get it.
Another fact that most customers tend to over look is that the higher the rewards on a card such as cash back cards the more the interest rates. In addition for better rewards there is also a higher annual fee. People need to feel less guilty about how much they are spending and splurging. Credit card rewards offer them a chance to not feel guilty by believing they are earning while they spend. The truth is that they are spending much more on cheap sales gimmicks which not many people would want to know!
Another tactic that many credit card companies use is to offer reward programs to customers who carry over the balances to the next month. When given a rewards scheme they will definitely end up spending more. There are many high income customers who end up overpaying to earn rewards and the main sales trick is to get them to believe they are paying for something great which is actually worth a lot less. Credit card rewards are a tricky business.
Disclaimer: This editorial content is not provided or commissioned by the credit card issuer(s). Opinions expressed here are the author's alone, not those of the credit card issuer(s), and have not been reviewed, approved or otherwise endorsed by the credit card issuer(s). Reasonable efforts are made to present accurate information, however all information is presented without warranty. Consult a card's issuing bank for the terms & conditions.
All rates and fees, and other terms and conditions of the products mentioned in this article/post are actual as of the last update date but are subject to change. See the current products' Terms & Conditions on the issuing banks' websites.
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