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The best Christmas American Express cash back rewards can buy!

A study showed credit cards that give cash back or offer rewards prompt consumers to spend more and accrue more debtI recently read a story titled "Study: Credit Card Reward Programs Lead To More Debt". The story states "a study conducted by researchers at the Federal Reserve Bank of Chicago showed credit cards that give cash back or offer reward points prompt consumers to spend more and accrue more debt." As an incentive for you to use your credit card more often, credit card companies that offer cash back cards give you a percentage of the amount you spent. The percentage will vary by card issuer, but generally it is around 1% for most purchases. Apparently, many credit card users get hooked on the idea of receiving a "bonus check" from the credit card company, thus making it easier in their minds to rationalize using their credit card more often. As this study points out, that practice unfortunately, leads to more debt as people have spent more than they can pay back just so they can get that 1% cash back!

It reminds me of a Christmas at a company I worked for years ago. Sales were slow that year, but the company had typically given out gifts at the annual Christmas party, and the senior management wanted to continue this tradition. The problem was there was no extra money for the party, let alone gifts. The solution they came up with was to start paying more company expenses with the American Express card throughout the year. It was the "perfect" solution! The bills were paid and American Express wrote the company a bonus check each month! That money could then be used to throw an even better party than the previous year! That Christmas we all celebrated and had a great time opening gifts and filling the hallways at work with laughter and holiday celebration.

Wouldn't you know that company went out of business a few years later, after 3 agonizingly painful years of debt, cancelled services, and layoffs? We later learned that paying off debt with more debt was so easy and temporarily rewarding, as the American Express Christmas Party proved, that it became a way of doing business. However, each time that happened, the problems got much worse until the company collapsed under the weight of debt. It was a great lesson for all of us personally that whether it is in business or personal life even that 1% "bonus" can be the first domino that falls against the others.

The Quarter Roll is published to provide personal insights and opinions on everyday ways of saving and managing money, budgeting, and reducing debt. The Quarter Roll does not give professional accounting, legal, or investing counsel. The ideas, examples, and advice presented on this site are solely the opinion of the authors based on his or her personal experiences. All photos courtesy of The Quarter Roll, iStockphoto, or Dreamstime.   All rights reserved. This site is best viewed when using Adobe Flash Player. free money magazine