Don't be Fooled, There's Another Reason Why Big Credit Card Issuers are Giving Generous Rewards (Hint: it's not for their users)

Hey there, savvy savers and money mavens, let's talk about a juicy financial tidbit that's sure to spice up your day.

Have you ever wondered why credit card companies go gaga for giving out rewards? Take AmEx, for example. This credit card behemoth is all about the rewards, and it's paying off in a big way. Their revenue has skyrocketed by 32% since 2017 (adjusted for inflation) and their shares are slaying the market.

So what's their secret sauce?

It all comes down to their business model. Credit card companies rely on "discount revenue" as their main source of income. And AmEx knows that big spenders are their golden geese. These fancy folk spend an average of three times as much annually as non-cardholders.

AmEx's "spend-centric" model is all about encouraging these big spenders to, well, spend more. And the way they do it is by offering drool-worthy rewards (think free travel, cashback, and more).

But why do they bother with all these rewards and high annual fees?

Well, it's all about the bottom line. AmEx can charge a premium to merchants who accept their cards because they know they're bringing in the most affluent, deep-pocketed spenders.

#CashRulesEverythingAroundMe.

Get Off the (Credit Card) Hype

While the rewards and perks offered by credit card companies can be enticing, it's important to recognize that these issuers are ultimately in the business of making money.

If you're not careful, you could end up overspending or racking up debt just to earn more rewards. Here are some tips on how to use credit cards as a tool to your advantage, without getting caught up in the issuers' business model.

• Start by setting a budget and only use your credit card for purchases you know you can pay off in full each month.
• Choose a credit card with rewards that align with your spending habits, such as cashback on groceries or travel points.
• Make sure you understand the terms and conditions of your credit card, including interest rates, fees, and any restrictions on rewards.
• Keep track of your spending and rewards, and regularly review your statements to ensure you're staying within your budget and getting the most out of your rewards.
• If you do find yourself in debt, prioritize paying off your credit card balance as soon as possible to avoid accruing interest and fees.

By using credit cards responsibly and strategically, you can take advantage of the rewards and perks offered by credit card issuers, without falling into the trap of overspending or accruing debt.

Just remember to keep your own financial goals in mind and use credit cards as a tool to achieve them, rather than the other way around.

Key Takeaways from Salt & Pepper

So, there you have it folks, credit card companies offer generous rewards to keep those big spenders spending, and to keep their own bank accounts happy. It's a win-win! (But not for the cardholder).

To stay out of financial trouble you should use credit responsibly. Stay tuned for more spicy financial tips and tricks from Salt & Pepper Finance.