Rewards credit cards seem like the perfect solution for those who want to earn free things such as airline tickets, cash back or money for university tuition. Most experts will tell you that you should pay off all your balance at the end of the month and not rack up any interest or fees in order to stay ahead of the credit card company. What most people do not know however, is that almost one third of all credit card rewards go unclaimed annually. That is nearly USD 16 billion. The banks are making sure that they are winning, no matter how frugal or thrifty the cardholder is. Here are a few facts to keep in mind next time you think about applying for a credit card with a rewards program.
There are a few research studies that have been done which are quite alarming when it comes to understanding how psychology affects the use of credit cards and rewards programs. Just the prospect of earning rewards from the credit card will cause the consumer’s spending to increase. A 1986 study, recently tested again and re-proven, found that just seeing a certain credit card logo was all that was needed to increase spending. The test involved subjects looking through a catalogue who were then asked how much they would spend for certain items. The tables they sat at either had credit card logos strewn about or were completely bare. Those who sat at a table with credit logos around them were willing to spend more on each item that was listed – in some cases up to 3 times more.
Just doing away with these rewards cards will not keep you immune from the costs that are associated with them. In some countries, credit card companies charge a certain fee to merchants in order to cover the cost of the rewards they are dishing out so that they do not eat into their own profits. Ron Lieber of the New York Times had this to say, “Rewards-earning credit cards with the Visa and MasterCard logo often cost merchants more than plain-vanilla ones, which hints at the card companies’ laser-like focus on subsidizing rewards for the affluent customers who are still spending, even if they are paying their bills off each month and thus paying no interest.” As a result, merchants will pass along this cost to the consumer by factoring it into the price of the goods.
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