Credit Card Update December 29, 2010
REWARDS CARDS LEAD TO MORE SPENDING, DEBT
Credit cards that give cash back prompt consumers to spend more and accrue more debt, according to researchers at the Federal Reserve Bank of Chicago. The initiation of a 1% cash rewards program yielded, on average, a $25 reward each month-and an increase in spending by $68 a month and in credit card debt of $115 a month, the economists say. Even small rewards can prompt people to spend more. In many cases, rewards entice people whose cards were dormant to start spending, the study found. About 11% of those who hadn’t use their credit cards in the previous three months made purchases of at least $50 in the first month of the program. The extra debt could mean two things: People spent more overall or they shifted spending to their cash-back rewards card from some other card in their purse or wallet. The study found both. That means that, for a lot of people, the benefit of a cash-back reward is negated by increased overall spending and debt.
Story by Conor Dougherty for The Wall Street Journal
MOST AMERICAN COUPLES HAVE A DIRTY LITTLE SECRET
The real taboo in American relationships is not sex. It’s money. A national survey of more than 200 people reveals about 80 percent of spouses acknowledge making secret purchases. To compound this dirty little secret, nearly one-fifth (18.5 percent) of those married admit to having credit cards their spouse knows nothing about. The survey, conducted for CESI Debt Solutions, reveals 38 percent of married couples are concerned the revelation of their financial unfaithfulness would result in their spouse seeking divorce or separation. Some 43 percent said they wanted to avoid an argument.
TEN TIPS TO REDUCING DEBT IN 2011
Paying down debt is one of the most common New Year’s resolutions and the tough economic times of the past few years have provided further motivation to reduce one’s debt. Being motivated is a good start, but to be successful, you must also have a plan to pay off your bills. Here are ten tips for consumers to reduce personal debt in the new year.
REWARD CREDIT CARDS HIKE DIRECT MAIL
About 1.2 billion offers for new credit cards were received by U.S. consumers in the third quarter of 2010, compared to just 391 million in the same period a year ago. Issuers continue to focus on credit-worthy consumers, and as a result, eight in 10 offers are for rewards cards promoting points, miles or cash-back to consumers, up from six in 10 offers in 2008. According to a Mintel Oxygen report on loyalty marketing, 24% of consumers actively compare credit card offers in order to compare reward programs. Consumers have become more frugal, saving more and spending less on their cards. In this environment, offers promoting cash back on purchases have become increasingly popular. Cash-back credit card offers accounted for 41% of all rewards offers in Q3 2010, compared to 28% a year ago. Furthermore, issuers are acknowledging consumers’ change in spending and are now focusing on rewards that offer better returns on “everyday items.” Forty-five percent of offers mentioned the word “groceries” somewhere in the mailing text in 2010, up from just 20% in 2008.
Story by Tanya Irwin for Marketing Daily
HOLIDAY 2010: THE YEAR SHOPPERS CAME BACK
Shoppers came back in force for the holidays, right to the end. After two dreary years, Christmas 2010 will go down as the holiday Americans rediscovered how much they like to shop. People spent more than expected on family and friends and splurged on themselves, too, an ingredient missing for two years. Clothing such as fur vests and beaded sweaters replaced practical items like pots and pans. Even the family dog is getting a little something extra. A strong Christmas Eve augmented a great season for retailers. The National Retail Federation predicts spending this holiday season will reach $451.5 billion, up 3.3 percent over last year. Some habits adopted during the recession lingered. Shoppers used cash more and credit cards less.
Story by the Associated Press
NEW JERSEY CREDIT CARD DEBT LAWSUITS SURGES IN BAD ECONOMY
The nation’s recession has caused a jump in lawsuits filed in New Jersey’s courts over credit card debt, with formerly affluent people increasingly the target of litigation. Lawsuits to recover debts of between $3,000 and $15,000 increased 25 percent from the fiscal year ending June 30, 2007, to the year ending June 30, 2010, according to court records. Court officials say credit card debt is the main reason for that spike. Lawsuits filed under the category of “special civil–contracts” increased from 299,438 to 374,888 from 2007 to 2010, according to court records. Court officials say most of those suits involve credit cards.
Story by Ben Horowitz for the Star Ledger
WACHOVIA PUSHES OVERDRAFT SERVICE
This holiday shopping season, Wachovia Corp. is reminding customers to sign up for overdraft services in case they swipe their debit cards too much. The bank, now owned by Wells Fargo, says it wants customers to be aware of their options and to help them avoid denied transactions. But the effort comes amid ongoing criticism of banks that charge debit card users overdraft fees. Wachovia’s latest push follows efforts earlier this year by most banks to encourage customers to sign up for overdraft services that allow them to complete transactions if they don’t have enough money in their accounts. Each overdraft can mean fees of up to $35. A Federal Reserve rule, which fully took effect in August, required banks to ask their customers to “opt in” for these overdraft charges. Those who didn’t sign up can’t complete debit transactions if they’re short on cash.
Story by Rick Rothacher of the Charlotte Observer