Rewards Cards Lead to More Debt

(Wall Street Journal) — 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 in a paper to be presented at the American Economic Association meetings next week.  Credit card companies have long enticed users with an array of rewards programs, from airplane miles to hotel rooms and cash back. In 2005, some six billion reward offers were mailed out by the industry, the Chicago Fed economists say.

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