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
If one needs these kinds of incentives to pay on time, they wouldn’t get very far! I use credit cards as for convenience. Rewards are much appreciated! But that’s isn’t the reason for using a CC.
I totally agree! The credit card companies are not giving away anything although it may save them some collection costs.
Little House says
I suppose it might encourage a small percentage of these card holders to pay their bills on time. But you’re right, they are targeting a group that may be having financial difficulties and can’t get their budget under control. I’d be curious to know if these companies saw a rise in on-time payments and what percentage was the increase.
I don’t know, but their collection costs probably will go down and they receive some good public relations. The consumer believes the credit card company is helping them even though they are paying roughly the same rate.
I wonder if these companies get an incentive from the shopping services…maybe a kickback or something. I personally don’t see anything wrong with this. It seems a little weird…I mean, you’re supposed to pay on time. The reward is the convenience of using the card and other points.
I think they save some collection cost and appear to be good guys. From the consumer point of view, they perceive an incentive even though it is very little.
I think it is a good marketing technique for attracting customers who “think” they will pay. But if they are not paying their other cards on time, they won’t be paying this one on time. The CC company can still collect their interest and be the good guy from consumers. No one should be rewarded specially for paying on time, it should be a natural responsibility.
I agree! The credit card companies look good as a benevolent company and probably save collection costs. I see it sort like training wheels, the consumer get an incentive for being responsible and eventually does not need the incentive. A nice thought anyway!
Joe Plemon says
This is a new one on me. It seems, from the interest rates being charged, that these are higher risk customers. The CC companies are balancing the risk of not getting paid at all with a very minimal reward for paying on time. They know what they are doing.
I think it is good marketing or public relations! There may be a reduction in collection costs they will still make the money off the high interest rates, if the customer does not adhere to the rules. Sounds like a win/win for the company.
I agree with other readers about this being a marketing ploy. I minimize my credit card usage and always pay off the balance every month. The CC incentives are just a minor bonus to me.
I think they are relying on the customers not adhering to the rules and paying the normal rates. For the company, it is a good public relations move and perhaps a way of reducing their collection costs.
Barbara Friedberg says
They still get money from merchants. Maybe it’s a marketing ploy to increase their card holders. It certainly is an interesting perspective.
I think it is a combination of good public relations and knowing the customers will have difficulty sticking with the rules for the rewards. Th credit card company looks good and still collects the high interest. If the customer does stick with the rules, the company still wins by lower collection costs. It is a win/win for the company!
It would make sense for them to market cards like this to people with less than perfect credit. Similarly I think these cards would appeal to people who generally do not have good financial habits.
Would I go for them? No. I’d go for the cards with the lowest rates and best reward programs.
Odds are these customers will not stick with the rewards program and the credit card company will receive the high fees and interest anyway. I think the credit card company gets publicity and positive public relations for their offering. Win/Win for the cc company.
Short, concise and to the point!
Roshawn @ Watson Inc says
I agree with others that this is more about marketing. I can’t blame CCs for figuring out different ways to entice customers to use their cards, but at the end of the day it’s not a true “favor” IMHO
You’re right and I think they use this to put themselves in a positive knowing that many will not stick with the rewards and pay the high interest rates and fees.
credit card debt says
You would not have a problem if you did not spend money that you did not have. I think the past couple of years has been a long overdue ‘wake up call’ for many Americans. The problem though is that many in debt blame others for their predicament. “Plan for the worst, but hope for the best” is a great perspective to financial planning.
Too many people spend money they do not have on “wants” and do not realize the consequences. Will rewards encourage people to get out of debt? Perhaps, some will!
It is an informative post. Reward for his services is not significant compared with low interest rates, or provide other discount cards.
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Reward Credit Cards says
Nice post. I am glad to know about these rewards. Being a new user of credit cards I was unaware about these schemes. Its a nice surprise to me. Thanks for the share.
Reward cards whether frequent flier miles or rebates are outnumbering the regular cards now.
Reward cards whether for frequent flier miles or rebates are starting to outnumber regular cards.
sears credit card online says
Very actual information for me! Thanks a lot!. You cannot even imagine
how helpful your article has been to me! Thanks alot!
You’re welcome, I hope you read some of my other articles too.