Stacks of credit-card solicitations arrive in mailboxes across America every week, enticing people with offers of free gas, plane tickets, cash back - even a down payment on a car.
The result is an even more-heavily saturated market: The average US household has 10 credit cards, according to Cardweb.com, a credit-card information service in Frederick, Md. And two-thirds of consumers plan to use their cards as much or more frequently than they did two years ago, according to an American Express survey released last month.
It also found that 1 in 5 Americans use their charge cards because they are members of card rewards programs and like to accrue frequent-flier miles or other perks.
But can you really earn a buck just by spending with your credit card?
Only if you charge heavily and pay your balance off every month, say consumer advocates.
Banks started offering rewards in the early 90s to lure more customers as competition flourished. Discover, for instance, led the way with its cash-back bonus-award plan, which gives customers a check for 1 percent of their total annual charges up to a certain point.
"Just about anything you can imagine has been tried in the rewards area," says Cardweb CEO Robert McKinley. "There are radio stations, even newspapers like the L.A. Times" partnering with credit cards to entice customers to earn free products or discounts when they charge.
People who use rewards cards typically get 1 to 5 percent of what they spend back in cash or a gift-certificate rebate. But most deals come with strings attached. Annual fees can soar above $75, and caps are placed on many bonuses.
And rewards-card users who carry balances from month to month can expect high interest rates, starting at 15 percent and going up.
"Most incentive cards charge nine points over the prime rate and five percentage points higher than other cards in general. You get 1 to 3 percent back of your purchase, but you pay 5 percent more. So if you charge $5,000 a year, you earn $50 to $100 in rewards, but if you revolve half that balance, you would pay $125 in extra interest charges than a card without the rewards," says Mr. McKinley.
Consumers who maintain a balance and pay interest are better off skipping incentive programs and opting for a low interest-rate card, he suggests.
Because a growing number of savvy customers pay their balances in full each month - almost half, according to the American Express survey - banks are now reining in card benefits. At the same time, they're bulking up perks for those who revolve their balances. For example, American Express Delta cards give cardholders a 20 percent bonus in miles earned if a balance is maintained.
(c) Copyright 2001. The Christian Science Monitor