Buying on credit, that is the way of our generation as well as those of using this tool in the last 10 years. Everybody knows the drill, all you have to do is swipe, swipe, and oh pay your bill at the end of the month. However, within the past five years, people have become so dependent on their credit cards and its purchasing power. We set ourselves up for disaster, people’s income decreasing, loss of stocks and 401K values have caused our personal money supply to regress.
Many people have used this as a cane, to help them with the struggle, but at the end of the month are unable to pay the bill. This has been a large reason for the banking industry’s decline, consumers defaulting on credit. Many companies are now offering incentives for high risk customers to pay their remaining balance and close the accounts, in an effort to protect creditors from loss.
One of these companies in particular is American Express, the “never leave home without it” card. Starting about a decade ago, AmEx started an effort to expand their customer base (cardholders). Going from 65 million credit card holders in 2004 to 92 million credit card holders in 2009, they have definitely succeeded in their efforts to expand. However, all of this expansion has increased their risk level. Their risk includes those who purchase, but don’t pay (default) on their loan.
The way the credit card companies operate, is they pay for the purchase initially, and then the end of the month comes, and you pay for the product(s) in the back-end. Some charge an interest even if you pay it by the end of the month, however most companies do not charge interest if the full balance is paid by the due date. The only time one would incur interest is if a balance is remaining on the card, this is where the company makes its money, by charging interest.
Now that is where the risk comes into play for the creditors. When they pay for immediate purchase, then the customer defaults on the back-end payment. Therefore the company is out the money that they fronted for the purchase of the good(s). This has caused a lot of lost money for the banking industry. Resolution, is easy, offer incentives to customers to close accounts during this rough time. This will decrease the level of possible consumers that go into default on their payments.
What AmEx has proposed for customers is very simple, pay your balance off, close the account and we will give you three hundred dollars. With many accounts at AmEx going into default, they must use something to decrease the amount of balances unpaid. May seem all good and dandy, but consumers must make this decision wisely when deciding to close out their account. If it is a card that they have held responsibly for a lengthy period of time, it is a large contributor to their credit score, removing this asset may possibly lower their score. The other thing to be aware of, it that some companies may impose a time limit on which this offer stands valid. Therefore it is imperative that consumers must read the fine print to determine all of the rules and regulations of the offers stated.
This may not be the deal for you, however, many consumers are looking for a way to get rid of excess debt, so why not pay off your AmEx bill and get paid 300 dollars to do it in the process. Just remember, that it may be a limited time offer, it may effect your credit score, as well as may take a chunk out of your pocket.
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