With the economic recovery picking up momentum, credit card issuers are gunning for increased market share. One prevalent marketing strategy is stepped-up credit card rewards programs.
Some economists predict that Q2 2014 GDP growth could hit 4%. That’s an amazing turnaround from the anemic Q1 2014 GDP Growth of 1%.
Financial institutions issuing credit cards are expecting a surge in the number and amount of purchases on credit cards. To capture that activity, they are focusing on making their rewards align with what different kinds of consumers want. However, consumers will have to be wary of some of the rewards programs.
A typical problem is that the terms and conditions of many programs are convoluted.
At first glance, consumers may be attracted to 5 percent cash back on quarterly purchases of everyday items such as gasoline and dining at certain restaurants. The catch though, is that consumers may have to opt-in every quarter for that.
They must also be aware that there are usually limits on the amount of purchases that are eligible for cash. If they aren’t paying attention, they might charge way more than the limit, with no reward.
Another kind of confusing set of terms and conditions could be the reward which provides, for example, $500 back for travel.
But to qualify for this, consumers have to charge $3000 on their cards during a three month timeframe. If consumers aren’t tracking the numbers closely, they could wind up charging too little or too much to make the reward pay off for them.
Related to that is the growing proliferation of different categories of “deals” among various cards. Consumers seriously focused on taking maximum advantage of rewards might wind up applying for many cards and carrying them all in their wallets.
Some may apply for multiple cards with rewards that pertain to shopping for groceries and travel rewards for example, and with an increased ability to spend, comes an increased necessity for fiscal responsibility.
There is also the ever-present peril of introductory offers which, of course, eventually expire.
However, consumers can game that system by enjoying the reward and never using that particular credit card again. That’s analogous to doing serial transfers of credit card balances at zero interest and never having to eventually pay the high interest rates which kick in after the promotional offer.
Consumers also have to be wary about signing up for a credit card which offers attractive rewards, with the annual fee waived for the first year. Come the second year, consumers may or may not notice the annual fee tacked on to their credit card bill. That can range anywhere from $95 to $175.
Obviously, the “price” for rewards has to be calculated in a number of ways. At the top of the list is the human cost of time and energy invested in monitoring offers and following the letter of the “law” for different rewards programs.
Next is the temptation of having too much credit available because of signing up for so many cards.
A mindset that spending equals goodies is not necessarily a terrible one to have. Card issuers get on board more members who spend more, and consumers get more bang for their buck, but these same consumers must remain vigilant in their spending habits.