Keep on spending! With Capital One posting a 37 percent profit increase for the first quarter of 2012, that is exactly what they want you to do. The powerhouse lender not only has its recent $9 billion dollar purchase of ING Direct to thank for this boom, but that of continued consumer spending. The reason for the consumer splurge is credited to the increasingly popular credit card rewards programs.
Within 31 days of their latest promotion, where cardholders earned double rewards points for every purchase with use of their Capital One Venture Card, the lender gave one BILLION reward miles. One point, the equivalent of roughly one cent, means the lender gave away over ten million dollars in rewards in the first month, making it pay for consumers to spend.
With a continuing rise in consumer spending, it is not out of the question for these profits to make their way back to consumer pockets. The increasing use of credit cards coupled with the increasing reward programs away from the base point per dollar – or 1 percent – model has been making big profits for the major lenders. With the influx of revenue, it will soon be time for the powers of the industry to notice the correlation and in turn, justify the causation of these rewards programs driving continued spending.
Most lenders are currently offering a base one points per dollar spent program with added tiered bonuses upwards of five percent, it is only a matter of time before six, seven, and eight percent or even higher becomes status quo in the industry. As is, there are cards that offer six percent on select purchases (Blue Cash Preferred from American Express) with a cap, but with rising spending will break the glass ceiling on the industry standard in these programs.
While continued spending will yield higher rewards, it is not an excuse to spend freely and without good spending habits. The average credit card debt per household is currently around $16,000 with over 75 percent of college graduates already in debt with credit cards up to $3,000 on average. Spending on cards and earning rewards is great, but the rewards become moot if you’re the type of spender that continually carries a balance on their card(s).
The safest and best way to maximize your rewards are to spend, but make sure you pay off your balance in full at every statement. If you must carry a balance make sure you are using a card that has as lowest an interest rate as possible. Remember to take your time when choosing a credit card and always compare, compare COMPARE!