Credit card rewards boosted for holiday season

Credit card debt falls so rewards get a boost

This time last week, this blog reported research from the National Retail Federation� (NRF) that suggested that only 27.6 percent of respondents to a survey said that they would be using their credit cards to make holiday purchases. Also at the end of November, TransUnion�, which describes itself as a global leader in credit and information management, unveiled data that showed that more than eight million Americans had stopped using general purpose credit cards.

This was seen as an indication of many consumers' desire to shop more responsibly this year, and to manage their finances proactively. And it seems to be working. TransUnion went on to say that the rate of delinquencies on credit card accounts had fallen to the lowest level since 1999. At last, it's beginning to look as if credit card debt is becoming more manageable.

However, the loss of so many active customers is clearly not great news for credit card companies, and some have responded to the trend by making their rewards programs even more attractive. The Wall Street Journal featured some of the enhanced deals in a November 28 piece.

Credit card rewards holiday bonuses

Two of the deals highlighted in the Journal were:

• Citi� Platinum Select� MasterCard� (along with other Citi credit cards)--you first have to register on the Citi site to be eligible, but after that every time you use your card during the rest of 2010, you should be entered into a sweep-stake. Prizes are prepaid cards loaded with anything between $10 and $10,000.
• Those with Discover credit cards (including the popular Discover� More(SM) card (formerly the Discover Platinum card)) can, until December 31, earn double cash-back (two percent) on online purchases up to $1,000. Anything over the limit will receive the standard one percent cash-back. During the same period, five percent is on offer on the first $300 worth of purchases made in department stores, clothing stores and restaurants.

Some other companies, including Chase credit cards, are offering their own enhanced programs.

Credit card companies find rewards work

It's too early to say how effective these bonuses will turn out to be. But, generally speaking, credit card rewards programs do seem to encourage spending. The Federal Reserve Bank of Chicago released November 30 the findings of a study it carried out into precisely this subject. It says:

We find that consumers generally spend more and increase their debt when offered one percent cash-back rewards. The impact of a relatively small reward generates large spending and debt accumulation.

And it found that, during the first quarter after consumers enrol in cash back rewards programs, each cardholder receives an average of $25 a month in rewards. Meanwhile, average monthly spending increases by $79, and average credit card debt by about $191. And the report continues: "Even in the long run, we find persistent increase in spending and debt."

As with credit cards themselves, rewards programs can deliver significant benefits. However, they also pose real risks of increased debt. If you're the sort of person who is organized and self-disciplined when it comes to money matters, then by all means enjoy your cards and the rewards they can bring. If you're not, then proceed with caution.

Published 12/6/10 (Modified 4/22/12)