Credit card rewards coming to an end?

Recently a discussion popped up in the forums discussing the end of credit card rewards. The discussion was spurred by an article from the NY Times (thanks Krozfan!).

In the article, the author mentions that:

…Congress is moving to limit the penalties on riskier borrowers, who have become a prime source of billions of dollars in fee revenue for the industry. And to make up for lost income, the card companies are going after those people with sterling credit. Banks are expected to look at reviving annual fees, curtailing cash-back and other rewards programs and charging interest immediately on a purchase instead of allowing a grace period of weeks, according to bank officials and trade groups.

I am skeptical

While I know credit card companies are going to have to cut costs, I am going to be surprised to see them start charging annual fees and eliminating rewards programs. The rewards programs are one of their most enticing pieces of bait that they have. While some people do walk away with “the reward” and benefit, there are more that ending paying 5 times as much in interest. Which of course makes it a profitable activity for the credit card company.

The article states, “major banks including American Express, Citigroup, Bank of America and a long list of others have already begun to raise interest rates, and some have set their sights on consumers who pay their bills on time.”

The companies do have to find a way to stop giving away so much to those who are “winning” at the credit card game, but I am not sure if eliminating the credit card rewards programs is the answer.

What if they do eliminate them?

If I am wrong, and the credit card rewards programs are eliminated and the interest grace period is shortened – why would anyone want to have one? Sure there will always be the people who want them just so they can spend money they don’t have, but it seems that many people who know the dangers of credit cards, get lured into them by the reward and incentive offers.

What are your thoughts? If the rewards programs were gone would you stop using your credit card?

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  1. Paul @ FiscalGeek

    Knowing what I do now, calling them “rewards” is hard for my lips to even utter. I cannot tell you how excited I was to call up Citi and cancel my Upromise “rewards” I calculated that I have paid them over $2800 in interest for my $65 in rewards towards my kids college.

    I sincerely hope they stop the rewards programs so that those out there who think they can game the Credit Card companies won’t get got in the trap themselves.

  2. To preface this…I use a credit card for most purchases for convenience and for the rewards, but we do pay our cards off every month (always have).

    I’m not sure if I would completely quit using them if they just cut the rewards programs (although I enjoy the rewards) because they are convenient to use, but if they start charging an annual fee or cut the grace period, I would definitely get rid of them. Why would I want to pay interest on money I already have in my account? And why would I want to pay an annual fee for the “privilege” of using a credit card?

  3. Matt Schmunk

    If the card company drops the rewards, I will just cancel my card. The only card we have is a gas rewards card and I’m getting $25 free gas card monthly. If they aren’t doing the rewards, there’d be no reason to use the card because we’re on a budget and don’t spend beyond the budget, so there wouldn’t be any need for a credit card.

  4. Paul

    I’m skeptical as well. Credit card companies make money a number of ways (i.e. they make money even if you pay your bill on time and don’t pay interst).

  5. JD from A Penny Saved

    I just received a notice in the mail that my Chase Rewards Credit Card is changing their reward program. They are reducing the rewards (not eliminating them), and are planning on adding a $25 annual fee.

    I have no need for a credit card that charges an annual fee, so I will probably drop that card. We have two other cards that we will keep for as long as they are free. But if they start charging annual fees, or if they start charging interest immediately from date of purchase (as some articles have hinted), they are gone too.

    Credit cards are a convenience, not a necessity.

  6. Ben

    I’d cancel my Chase cards if they started charging me to use them or dropped the rewards. I really like getting the rewards, but on the plus side it would simplify my life if I didn’t have to pay off the credit cards.

  7. Shannon

    Our Chase card didn’t drop the rewards (yet), but they did cut them significatly and called it “new benefits.” I was really irked by the twisted use of “new” to describe reduced benefits. I can understand cutting back, but it’s obnoxious that they try to spin it as a good thing.

  8. pochax

    i would not cancel any of my cards (so as to hurt my credit score) but i would stop using them ESPECIALLY if they get rid of the grace period. remember that CC companies also make transaction cost revenue merely for swiping that card. the lost revenue from that alone will show what a bad move it will be to stop grace period/rewards. last year i paid $0 interest and got >$800 in rewards. that is the only reason i use them.

  9. Ben

    It looks like a spam bot copied and pasted my last comment, added a “P.S.”, and used a link to their site! It may be time for a captcha on this site.

    • bob

      wow, they are getting more clever 😉 while they work pretty well, I really hate captchas – but if I notice the trend continuing, I guess we will have to do it…

  10. Zach

    I would stop using if a significant fee was implemented (more than single digits a year) but not if rewards were eliminated. However, if rewards were eliminated but no fee, I’d use cash more as thered be no reason to use a credit card for convenience except when it was a significant cost beyond the amount of cash I was willing to carry

  11. GHolmes

    If rewards go there will be another marketing gimmick by the “loan sharks” to hook more users. I am happy current administration is attempting to regulate them.

  12. Johannah

    Hubby and I (and even Son #1) use our credit cards for the convenience – paying the balance off in full every month (and collecting our rewards) ~ these are all no fee cards and the benefits have been decent (free gasoline, cash back and airline miles and hotel points) using them this way. Several times our vacations were almost totally free because we could fly to a destination, and use our miles for hotel stay, rental car and other pieces of the trip) If they increase the % – we don’t care – we never carry a balance – however we do enjoy our rewards and would hate to see them go, or fees for just having the card. I think in that case we would cut them up and move on.

    On this same line, let me also report the credit card companies have increased the merchant fees, so the merchants are taking less for their wares and are paying more for “taking” your card as well — altho they still have the same risks in doing so (from fraud and other issues). So the credit card companies ~~ aren’t looking to trim their excesses and run a leaner ship — they are just going to make the money another way.

    P.S. Hubby and I made an agreement 37+ years ago when we married that if we EVER couldn’t pay the balance in full on our cards we would cut them up and never use them again. This hasn’t happened — because we are in control of using them (and therein lies the key).

  13. passive family income

    My wife and I have two credit cards that earn rewards. One is for gas purchases only and the other is for everything else. We charge everything that we possibly can while keeping track of every cent that goes on them. Each card is payed off at the end of the month. If the credit card companies stop the rewards programs – we will just stop using them and start using cash again.

  14. mbhunter

    My rewards program is being downgraded a bit: they’re switching to a points-based system, which can be much more easily manipulated.

    I’ll continue using a CC as long as it doesn’t cost more than cash. Why turn down free float?

  15. Gholmes

    No there is a cost no such thing as “free” float. Merchants are paying for your every swipe.

    Is it not evident that today we are paying for our society’s addiction to easy credit? My kids kids will be paying for the bailout.

  16. Dree

    I would stop using them without an incentive. Actually I have already stopped but for other reasons.

  17. Carol Ann

    I have paid my cards at the end of the month my whole life. I got screwed on airline rewards by them raising the amount of miles it takes for a trip but cashed them in figuring soon they will only be worth a magazine subscription. If they drop rewards and especially if they charge me a fee for paying in full, I will definitely drop them. I am sure they will find a way to ding you on a debit card too.

    How’s this going to affect Twitter’s Jack Dorsey and his new square??

    I am stoked that someone is taking on the Merchant Services people who have been putting it to the merchants for way to long, but if people give up their cards Dorsey’s party might be affected.