January 4th, 2011
Not In Their Debt: The Problem With Cash Back Cards
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**Today’s guest post is contributed by LearnVest **.
Cash-back reward programs on credit cards aren’t too good to be true—in truth, they’re inspiring more debt among their users than rewards of cash.
Debt Now, Cash Soon.
A study run by three economists and mentioned in the Wall Street Journal found that among 12,000 credit card accounts, those users offered cash-back rewards not only spent more, but assumed more debt as well. From the Journal:
The extra debt could mean two things: People spent more overall or they shifted spending to their cash-back rewards card from some other card in their purse or wallet. Sumit Agarwal, one of the co-authors, says the study found both. That means that, for a lot of people, the benefit of a cash-back reward is negated by increased overall spending and debt.
A Good Credit Score Is A Sad Thing To Waste.
It’s no news that rewards programs are meant to inspire spending and funnel money to credit card companies, not simply to brighten our day. But the finding that really strikes us as problematic is a preceding statement: “That debts grew faster than spending among those offered cash rewards likely means people reduced their monthly payments more than they increased spending.” To minimize credit card payments in order to spend more overall is completely counter-intuitive to financial health. Carrying a balance on your cards will chip away at your credit score, as will approaching your limit and accumulating credit card debt—the financial kiss of death.
Read the full article and get the whole story on cash back cards at LearnVest now!