I recently read an article called Win Rewards for Paying Off Debt in Kiplinger magazine. The author writes about several credit cards that offer incentives to pay on time. They encourage frugal behavior! Let me translate for you, the credit card companies pay you to pay them on time. Why would they do that? What is in it for them? I always thought they only wanted the minimum payment so they could charge interest rates of 18-24% on the balance.
What do you think about this concept? There is no such thing as a free lunch! Right? The article goes on to explain three different cards that offer various incentives to pay your payment on time. Let me translate again for you, the cards do not have annual fees, the interest rates appear to be about the same as regular cards and the incentives vary from card to card.
Discover (no annual fee) Motiva card rewards cardholders who pay on time monthly for six months. If you pay on time for six months, you earn a bonus of next month’s interest. You can receive that rebate twice a year if you pay on time every month. In addition, you receive 1% rebate on all purchases. If that is not enough, they will automatically remind you of the payment by phone. Is this the new nanny card? The interest rate ranges from 16.99% to 23.99% based on your credit history.
Citi Forward (no annual fee) card offers a .25% interest rate (max. 2% reduction) reduction for paying on time for three months and staying under their credit limit. There are additional rewards for every dollar spent and for paying on time. These rewards can be redeemed for cash, travel or merchandise. The interest rate ranges from 12.99% to 20.24% depending on income and credit history.
Capital One MTV Visa (no annual fee) card offers 25 bonus points when you pay on time. Additional rewards of five points for every dollar spent on entertainment, two points for money spent at restaurants and one point for everything else. You can redeem these points for MTV merchandise, cash, airline tickets or gift cards. The interest rate is 24.9%.
This is not intended to be a credit card review! Instead, I want to spark a conversation or dialog, if you think this is a good concept or not? Should credit card companies offer incentives to certain customers to pay on time? You will notice the interest rates for the most part relate to the credit risk. The interest rates about the same or higher than many credit cards. The rewards they are offering will not materially reduce the interest rate or provide a rebate different than other cards. Why would you take this card versus other cards? One reason may be to reinforce a change of habits by earning these incentives. There is a variety of benefits to these rewards programs, if you need the incentives to pay your monthly payment on time. If you have good credit, you pay your bills on time; there is no need to get these cards. What would you do? Do you like this concept of offering bonuses for paying your bills on time?
Photo by: The Consumerist