Credit card companies have invested in pitching the "benefits" of their rewards and consumers have bought it, using their credit cards to make purchases in the hopes of saving big. But are the savings all an illusion?
Benefits Canceled Out
The problem with these rewards programs is the benefit is often canceled out by annual fees and higher interest rates. U.S. News & World Report cautions that people are likely to purchase more when their credit card offers a rewards program, because their sense of guilt is lessened by the notion that they are receiving something for free. It appears that consumers tend to spend before they get their reward as well as after receiving a reward.
Credit card companies traditionally target their reward programs at consumers who carry debt, but they also target higherincome consumers by offering expensive exclusive programs like special concert tickets, meetings with celebrities, and even space flights. Experts suggest that consumers are better off keeping balance-free credit cards with lower interest rates and no annual fees, which will leave them with extra cash to buy whatever they want free from the limitations of so-called rewards.