So I have zero proof to substantiate it, but my half baked prediction for the next financial meltdown is that it could to be due to a perfect storm of our current record high household debt and unscrupulous practices by the credit card industry and their loyalty "partners". Right now, it's pretty obvious that CC companies are giving away rewards cards like candy to people with garbage credit scores. Tons of people are racking up debt to get points and miles who would have NEVER qualified for these types of cards a few years ago. The truth is, the CC application process requires minimal verification and it's ridiculously easy to get accepted for one of these rewards cards that have crazy high annual fees and APRs. Some of the redemption rates are absolutely worth it if you're a business traveler or if you can afford to pay off a high balance every month, but a lot of these cards won't help the average consumer one bit and the "rewards" or points are pretty useless if you don't read the fine print carefully. Couple this with the fact that a lot of people "bank" miles/points for future use in the hope that they will actually hold value in the future, which brings me to my next crazy tinfoil point:

I wonder what would happen if a lot of people suddenly decided to cash in all their points/miles/rewards at once, and an airline, hotel, rental car agency, etc refused to honor the agreement? The price of oil has been pretty steady for the past few years, but if it suddenly were to surge due to a natural disaster or some type of shortage, how could the airline industry be able to swallow a ton of consumers cashing in on their miles?

Obviously, it's a very slippery slope, but if the points/rewards consumers have been "banking" for future use, suddenly drop significantly in value or become completely worthless, why would people who've racked up a ton of debt on their accounts bother to pay off their debts?

Clearly, I'm no economist and I have very minimal knowledge of how the CC industry actually works, but when I see people I KNOW have terrible credit and tons of debt whipping out "exclusive" reward CCs at dinner or the bar, or boasting about getting approved for one of these cards to fund a trip/purchase they can't afford, I have to wonder if this might be a sign that something is terribly wrong.

Come at me, TWW- I want to learn!

8/21/2017 1:15:33 PM

You completely left out college debt. Do you not feel that is also a bubble worth bursting?

But I completely get what you are saying about CC debt. Our youth isn't taught to conserve, they are taught to consume. Credit cards make consumerism so easy. So easy.

[Edited on August 21, 2017 at 1:20 PM. Reason : sdfa]

8/21/2017 1:19:14 PM

I mean that's a given. I am just talking specifically about CC debt though, since the approval process seems to have very little scrutiny and it reminds me of 2008 where people who had zero business buying real estate were qualifying for worthless mortgages.

8/21/2017 1:21:53 PM

To add to that, once you actually GET a credit card, there are no follow-ups by the CC companies to make sure your income is still aligned with your limit. I mean I have a few store cards to take advantage of certain promotions, and I could log into each card today and say I make 300k/year, apply for a higher limit, and get it.

It is ridiculous.

There are some rewards cards that, if done right, can save you some money, but unfortunately the people that these programs are marketed to are exactly the ones that get taken advantage of.

8/21/2017 1:32:23 PM

I haven't read anything about this so far, but maybe it's already been covered. If not, the fact that nobody's paying attention is worrisome.

And yeah, it's ridiculously easy to ask for an increased credit line with ZERO verification. I guess what's unsettling to me is that people are going into debt for a "reward" that's nothing more than a promise at a later date. I mean for my cash back cards, I redeem that shit right away, but miles? Most of the time, you want to bank those up so you can actually travel somewhere decently in the future. Yeah, I recognize plenty of people are smart and churn cards to get sign up bonuses and cancel the card right after, but those aren't the people I'm talking about. Aside from a few industries, wages are stagnant, so the fact that average debt is so high right now while all types of people are being approved for these "rewards" cards is a red flag to me.

[Edited on August 21, 2017 at 2:09 PM. Reason : .]

8/21/2017 2:07:04 PM

They get the flight for free, and put the rest of the vacation on the credit card that gave them the miles. FOR MOAR MILES.

What we do with our rewards card is use it in lieu of our debit card. Pay it off monthly, and use our cash back to pay for Christmas.

8/21/2017 2:10:28 PM

Quote :

"So I have zero proof to substantiate it, but my half baked prediction for the next financial meltdown is that it could to be due to a perfect storm of our current record high household debt"

Are you talking about nominal total dollars and where did you get that? From what I just quickly looked up, household debt to disposable income is at its lowest point since the tech bubble burst and household debt to GDP is at its lowest point since 2005 (where the data starts so admittedly small sample).

And something as arbitrary as redeeming airlines points all at once is a very random occurrence.

Quote :

"and I could log into each card today and say I make 300k/year, apply for a higher limit, and get it."

Without any firsthand knowledge of this business I'd imagine limits are still far more dependent on credit worthiness than personal income.

Quote :

"Our youth isn't taught to conserve, they are taught to consume."

JFC, this is a fucking baby boomer "get off my lawn" type lie. Aside from school debt this is just not true.
.

[Edited on August 21, 2017 at 3:03 PM. Reason : There are dozens of other bubbles I'd be more worried about tbh]]

8/21/2017 2:59:12 PM

https://www.bloomberg.com/news/articles/2017-08-10/in-debt-we-trust-for-u-s-consumers-with-12-7-trillion-burden

Quote :

"Household debt outstanding -- everything from mortgages to credit cards to car loans -- reached $12.7 trillion in the first quarter, surpassing the previous peak in 2008 before the effects of the housing market collapse took its toll, Federal Reserve Bank of New York data show. To put the borrowing in perspective, it’s more than the size of China’s economy or almost four times that of Germany’s."

Quote :

"For most Americans, whose median household income, adjusted for inflation, is lower than it was at its peak in 1999, borrowing has been the answer to maintaining their standard of living. The increase in debt helps explain why the economy’s main source of fuel is providing less of boost than in the past. Personal spending growth has averaged 2.4 percent since the recession ended in 2009, less than the 3 percent of the previous expansion and 4.3 percent from 1982-90. "

Quote :

" JFC, this is a fucking baby boomer "get off my lawn" type lie. Aside from school debt this is just not true. ."

I wasn't even talking about Millenials. I was talking about people my age mid 30s and up that are suddenly having rewards cards and financing shit they can't afford.

[Edited on August 21, 2017 at 3:06 PM. Reason : .]

8/21/2017 3:03:12 PM

Hard to square with the index data I just pulled. Index peaked on 12/31/07 and has gone down nearly 30% since for HH debt versus disposable income.

[Edited on August 21, 2017 at 3:05 PM. Reason : Of course some is related to rapid loss of wealth post housing bubble]

[Edited on August 21, 2017 at 3:10 PM. Reason : Obv meant HH debt]

8/21/2017 3:04:57 PM

After looking at that chart, it's pretty clear that CC debt isn't anywhere near as high of portion of HH debt that mortgages, auto loans, and student loans are (a lot lower than I thought it would be, honestly); however, it is interesting that CC debt has grown as much as it has over the past few years, which happens to coincide with the CC companies plethora of competitive offers for "rewards cards"

You're probably right in that we should be worrying WAY more about student loan debt than a hypothetical CC repayment 'crisis', but it's certainly interesting to see such lax CC approval policies for cards that most people have no business qualifying for- I can't see anything good coming out of such loose restrictions.

8/21/2017 3:22:44 PM

Quote :

"Our youth isn't taught to conserve, they are taught to consume."

8/21/2017 4:20:49 PM

We should make a distinction between a bubble bursting and a financial meltdown. The housing bubble burst, in part, due to a shit ton of people over extending themselves financially and eventually being unable to pay the money back. The financial meltdown had a lot more to do with the major banks creating a whole bunch of financial products based on those loans, overextending themselves, and then the insurance companies backing this all up (this is a fairly simplified version of events that doesn't cover the full scope). Without the latter happening, the housing bursting of the housing bubble wouldn't have been nearly the crisis it became.

Now have the same things been happening behind the scenes for credit card debt or student loan debt? I haven't heard of it, but possibly. Regardless, until someone shows me that it has, I'm certainly not going to be convinced that would lead to a financial meltdown.

Auto loans? Maybe. I remember John Oliver's segment seeming to suggest very similar things are happening behind the scenes there. I do remember thinking it wasn't quite the same at the time, but I'm hazy on those details.

Also, just as an aside. I highly doubt a bunch of people using they stored up credit card miles at the same time would lead to any sort of problem. The majority of airlines and hotels limit how many of their tickets/rooms can be purchased with miles. And for the ones that don't, like maybe Southwest, I would think they have other protections in place if something like that were to happen...plus I'd be pretty skeptical that would happen anyways. People have to plan travel to use those miles and points. What are the chances everyone decides to start planning vacations at the same time?

8/21/2017 4:42:41 PM

^^Consumerism is the basis on which our economy stands. We're a nation of consumers.

And we consume more than we can afford, as a nation.

8/21/2017 4:50:22 PM

the same youth that came of age during the financial crisis of 2008 are the ones who are taught to consume instead of save?

the ones who couldn't get a job after graduating college and on many occasions had to live at home with their parents to save money?

8/21/2017 5:00:24 PM

the fact that young folks save as much as they do when the fed has done all they can to disincentivize saving with near zero interest rates is quite impressive. unfortunately, it will probably cause them to go negative with interest rates at some point.

[Edited on August 21, 2017 at 7:05 PM. Reason : imagine paying to keep your money in a fractional reserve bank ]

8/21/2017 7:01:21 PM

While it's obvious that young people stay at home longer to save on rent, let's not kid ourselves and think they're just hoarding all of their money though. Kids still spend tons of money on music festivals, videos games, traveling, craft beer and fancy cocktails, smart phones/watches/tablets, tattoos, etc.

I'm too old to be a Millennial, but I teach at a community college and university and it's not like my students live some minimalistic lifestyle. They're still consumers, just not in the same way their parents or older siblings were.

At any rate, like I said, my OP wasn't even about Millennials anyway, but circling back to the original premise, I think El Gimpy made some great points about the difference between a bubble and financial meltdown. People getting approved for rewards cards that will do them more harm than good isn't the same as a sham mortgage industry- although I definitely see some parallels.

Since interest rates are such crap, nobody is putting much into savings, so banks have had to come up with all sorts of ways to make money off of customers. First, it was ticky tacky fees, but what I've noticed recently is that a lot of the most desirable rewards cards come from the big banks like Chase and Citi. Maybe I'm too young to remember what types of rewards cards were out 10-12 years ago, but I definitely don't remember it being like this.

8/21/2017 9:13:36 PM

skateboards. you forgot skateboards.

8/22/2017 12:07:11 AM

Quote :

" Kids still spend tons of money on music festivals, videos games, traveling, craft beer and fancy cocktails, smart phones/watches/tablets, tattoos, etc."

but is this some new issue? you get outta college, get a job, and don't have a family to support...yeah, you're gonna spend that disposable income on some stupid shit. but is there anything to suggest that this is a new and emerging phenomenon and that this wasn't the case in the past?

8/22/2017 12:00:56 PM

Quote :

"yeah, you're gonna spend that disposable income on some stupid shit."

I kinda think that was the point here. This isnt disposable income they are spending its imaginary money. We did the same thing to an extent I am sure but I think most of us in college looked for the most part as poor as we were. I do remember the CC companies sitting out in the brickyard though. Older people were being stupid with their money at that age as well for sure and not saving either but it was whatever actual money they could come up with moreso than I would imagine it is today.

8/22/2017 3:14:59 PM

Do we have any numbers on credit card debt increasing in a significant way by age?

I haven't seen anything, so I have no clue, but for how often I see "CREDIT CARD DEBT IS THE WORST THING IN THE WORLD AND WILL MURDER YOU IN YOUR SLEEP" stories in the news, etc. these days I would be surprised if the current generation wasn't more aware of the pitfalls than prior ones

8/22/2017 3:27:22 PM

I mean if you look at the chart for the article I posted, you can see CC debt has definitely gone up over the past few years, but so has all other types of debt. I just think it's alarming how easy is to get approved for an "exclusive" CC with $500 annual fees and APRs of over 20% so that cardholder can get all sorts of benefits that were previously much harder to get unless you were a regular business traveler.

8/22/2017 3:40:57 PM

Specifically for CC debt it's almost impossible to tell in that graph whether it's changing or not, it's such a small piece (unless you're looking at something different than I am). To my eye it looks basically unchanged, but again would need to see numbers there.

The biggest driver of change seems to be mortgages, which I would have expected to trend up since the financial crisis, since immediately after banks were severely limiting how much they were lending, but it's been lessening since then. It looks like we've almost reached the same amount of debt outstanding since the high just before the meltdown, so yeah, that could be an issue, depending on who they're lending to exactly.

8/22/2017 4:05:44 PM

OK, so I Googled:

https://www.washingtonpost.com/business/us-consumer-debt-is-at-a-record-high-havent-we-learned/2017/08/11/5c7bee6e-7e13-11e7-a669-b400c5c7e1cc_story.html?utm_term=.2157bea79129


https://www.cbsnews.com/news/u-s-credit-card-debt-is-expected-to-top-1-trillion-in-2017/

http://www.businessinsider.com/credit-card-debt-record-2017-8

[Edited on August 22, 2017 at 4:15 PM. Reason : derp wrong link]

8/22/2017 4:10:49 PM

Yeah that doesn't look great

I'm still looking for a trend in credit card debt by age group, but a couple points from this site:

https://www.valuepenguin.com/average-credit-card-debt

Quote :

"Age Average Credit Card Debt Less than 35 years $5,808 35 to 44 years $8,235 45 to 54 years $9,096 55 to 64 years $8,158 65 years and over $6,351 65 to 69 years $6,876 70 to 74 years $6,465 75 and over $5,638"

Quote :

"average credit card debt in America has been rising over the last decade. However, despite this, the average percentage of people holding credit card debt has been gradually decreasing. This tells us that the while average credit card debt is increasing, it’s not due to a greater number of individuals spending. Instead, in recent years, more people have been more heavily indebted"

So it doesn't look like it's younger people at the heart of this problem really. The fact that the debt is being used more and more by people already in high debt is alarming though.

8/22/2017 4:53:12 PM

Slightly off topic:

Which is exactly why the OG statement blaming the frivolous youths is so frustrating. I know it was just a kinda throwaway statement ITT( NBD, I was gonna let it go until y'all start digging up more info), but it really is a meme/prevailing wisdom in the Boomer media (avocado toast, etc) and I think it does real harm to the targeted generations.

The biggest harm is that it allows Boomers to punch down without looking in the fucking mirror. 10,000 boomers retire per day and estimates suggest that somewhere between 30% and 45% have less than 5 years of living expenses saved (the numbers and how it's measured are different every time I look it up, but suffice it to say it looks pretty ugly)

Do millenials/GenX need to get their shit together? Of course. But most still have 20+ years to at least make up some ground.

Where are all of the alarm bells going off for the woefully unprepared Boomers???

8/22/2017 5:39:25 PM

Umm, didn't the boomer generation raise the millenials? Am I missing something here?

8/22/2017 5:47:41 PM

Ok, for like the third time, I AM NOT BLAMING THIS ON MILLENNIALS. I am blaming this on banks/CC companies that are handing out rewards cards to people with shit credit like candy. I guess some Millennials might qualify for them if they've got a job with a decent salary, but my concern is more about people who are older that already have debt, car payments, mortgages, etc that are being incentivized to take on additional debt for the promise of future "rewards"

Quote :

"So it doesn't look like it's younger people at the heart of this problem really. The fact that the debt is being used more and more by people already in high debt is alarming though."

WE HAVE A WINNAR!



[Edited on August 22, 2017 at 6:14 PM. Reason : .]

8/22/2017 6:12:39 PM

I have a hard time understanding your connection with REWARDS points. Is there any data that exists to show that cc rewards are a problem!?!? Your argument about there being little oversight on the CC market and the ability for the average consumer to get a line of credit and increase it with very little income verification seems in line with some of the causes of the housing market crash in the mid 2000s but I don't see how rewards that are relatively hard to redeem for any real sort of value have much to do with it. It's like arguing that the free $50 home depot card my realtor gave me when I bought my house impacted my financial decision as much as all of the other factors I weighed before taking out my mortgage.

8/22/2017 9:30:19 PM

Quote :

"I wasn't even talking about Millenials. I was talking about people my age mid 30s and up that are suddenly having rewards cards and financing shit they can't afford. "

Quote :

"I'm too old to be a Millennial"

I'm simply guessing that 84 is your birth year but seems reasonable

https://en.wikipedia.org/wiki/Millennials

You seem to be close to here but not quite - https://en.wikipedia.org/wiki/Oregon_Trail_Generation

8/22/2017 10:24:14 PM

I was born in 1984 and my sister was born in 1982- we both played Oregon Trail in elementary school and used AOL dial up via CD ROM back in the mid 90s, and when we left for college at 18, we never moved back home. We were pretty much latchkey kids since my parents got divorced, so maybe that made us feel "older" than we actually were. We both had jobs when we were 15 and had a lot of freedom. There's essentially no age gap between us, and I would say we have much more in common with younger Gen X folks than the vast majority of Millenials. My younger brother was born in 1991 and he's about as Millennial as they come; he didn't move out of my parents' house until he was 24 (he didn't even have a real job until he was about 21) and he's pretty similar to my students when it comes to personality, political attitudes, and overall behavior. FWIW, my brother and I get along pretty well for the most part, while my sister and I aren't very close.

I don't know why this thread had devolved into some type of critique or defense of people that happen to be younger than most of us, but the point of this thread was to discuss the potential consequences that could arise from to people going into debt based on the promise of some immediate or long term "rewards"

I said from the beginning that I didn't really have any way to substantiate, and other have made some good points about the unlikelihood of people suddenly cashing in on rewards that CC companies might not be able to deliver on this future. I do wonder what would happen if enough people used up rewards ASAP and then let their accounts go into default because they lost their jobs though. Maybe that's a more likely scenario. IDK

8/22/2017 11:31:25 PM

Quote :

"So I have zero proof to substantiate"

a lot of wild, elitist claims in this thread.

Quote :

" it's pretty obvious that CC companies are giving away rewards cards like candy to people with garbage credit scores. "

not true. all of the major rewards cards require 690 scores. tkae a look on nerdwallet or creditkarma

Quote :

" The truth is, the CC application process requires minimal verification and it's ridiculously easy to get accepted for one of these rewards cards that have crazy high annual fees and APRs. "

where are you getting this "truth". most online systems verify information through the credit report. sure, fraud is possible, but i dont know why you think its rampant.

Quote :

" I could log into each card today and say I make 300k/year, apply for a higher limit, and get it. "

its referenced by your job on your credit and the income range for that job in your area.

Quote :

". I was talking about people my age mid 30s and up that are suddenly having rewards cards and financing shit they can't afford. "

this is the whole purpose of loans to begin with. you aee the system working as a failure. if everyone churned, the cards would go away. someone has to pay interest but tgey get to enjoy their life in return for the assfuck. everyone "wins"
[quote]
they are definitely verified on the spot by the system. its based on ability to make minimum payment on the maximum balance when considering your rent income and other loan payments. cc minimum paayments are pretty small which explains how more people can afford them. also, some people only get approved foe a few k so you may see them whip it out but dont not they have a limit they can manage.

8/23/2017 5:28:56 AM

Thanks for making my point for me. 690 now equals an EXCELLENT credit score? K.

The rest of your post is pretty garbled and hard to understand

[Edited on August 23, 2017 at 10:06 AM. Reason : .]

8/23/2017 10:06:08 AM

690 is good not excellent. you said they were giving them oout like candy to people with "shitty" credit which was verfiably false. you admit you dont know about cc but you also dont know about credit.

8/23/2017 10:31:53 AM

^^ 690 is not bad at all. Those people should not be precluded from building their credit and taking on a reasonable amount of debt. You're making it sound like companies are giving out $20k limit cards like candy to anyone with a pulse. They aren't and it would be a horrible business decision if they did.

Considering your politics it's pretty interesting choosing this battle. Surely you don't support personal austerity. And it is still markedly harder for a sub-720 credit score to get a mortgage, for example, than it was pre-housing bubble.

[Edited on August 23, 2017 at 10:51 AM. Reason : X]

8/23/2017 10:49:50 AM

^^You read Credit Karma and Nerd Wallet? Sites that allow people to shop around easily for rewards cards?? Wow that must make you super knowledgeable. 690 is the bare minimum for what's considered a good FICO score. Good is not the same as excellent. Excellent credit starts at 720, but for as long as I have known what a credit score has meant, anything under 700 indicates that you either had dings on your credit score or little credit history. The fact that the bare minimum to qualify for a rewards card now starts so low isn't a good sign to me, but I'm sorry if I offended you by calling your 690 score shitty when it's actually slightly better than fair.

^Im not choosing a "battle", I'm just legitimately concerned about the level of debt being carried these days and incentivizing people to take on additional debt. I'm very pro-consumer and pretty anti-big bank/CC companies.



[Edited on August 23, 2017 at 11:14 AM. Reason : .]

8/23/2017 10:57:28 AM

Rewards cards don't use credit score as the sole decider in who gets those cards either. I've been turned down with good credit before for lack of history and excellent credit for having too many cards (too many being only like 3 at the time). Do we have any numbers showing that the credit issue we're discussing is in any part a result of high rewards cards?

8/23/2017 11:12:39 AM

Quote :

"690 is the bare minimum for what's considered a good FICO score. Good is not the same as excellent. Excellent credit starts at 720, but for as long as I have known what a credit score has meant, anything under 700 indicates that you either had dings on your credit score or little credit history."

nobody ITT has attempted to make the argument that 690 is an excellent credit score

8/23/2017 11:25:09 AM

Quote :

"Rewards cards don't use credit score as the sole decider in who gets those cards either. I've been turned down with good credit before for lack of history and excellent credit for having too many cards (too many being only like 3 at the time). Do we have any numbers showing that the credit issue we're discussing is in any part a result of high rewards cards?"

I've had similar experiences, but am I the only one who is noticing that there's an overwhelming number of rewards cards to choose from these days? I definitely remember people in the Brickyard giving away T shirts and sunglasses (essentially worthless) when I was a student at State, but I wasn't in any position to qualify for "Sky Miles" cards (that's what I remember them being called).

To answer your question, no, I haven't been able to find any data showing hard numbers about exclusive rewards cards being issued, or any proof that rewards cards are the source of mounting CC debt. The fact that nobody is keeping track is pretty concerning to me, because like I said earlier, I don't trust banks/CC companies one bit.

To be clear, people should absolutely be able to build their credit and learn to manage reasonable levels of debt, especially when it comes to things like housing cars, and education. I just think incentivizing people to acquire debt for the promise of rewards is an easy way to profit off of consumers who may not have thought carefully enough about making responsible choices is a recipe for disaster.

Quote :

"our argument about there being little oversight on the CC market and the ability for the average consumer to get a line of credit and increase it with very little income verification seems in line with some of the causes of the housing market crash in the mid 2000s but I don't see how rewards that are relatively hard to redeem for any real sort of value have much to do with it. It's like arguing that the free $50 home depot card my realtor gave me when I bought my house impacted my financial decision as much as all of the other factors I weighed before taking out my mortgage."

I see your point, but there's an ocean of difference between a $50 home depot gift card that's worth a fraction of a percentage compared to something like a fixed mortgage, and CC rewards on a 5, 10, or 20k limit that racks up interest very quickly, on top of fairly high annual fees and penalties.


[Edited on August 23, 2017 at 1:30 PM. Reason : .]

8/23/2017 1:25:20 PM

^I stand by my statement. I think you're making a really poor link between rewards points and predatory/unscrupulous/irresponsible line of credit issuance.

Quote :

"I just think incentivizing people to acquire debt for the promise of rewards is an easy way to profit off of consumers who may not have thought carefully enough about making responsible choices"

Quote :

"point of this thread was to discuss the potential consequences that could arise from to people going into debt based on the promise of some immediate or long term "rewards""

I don't think you have a good handle on why people get credit cards.... and your idea is based on the amount of credit card debt, and the number of "rewards" type cards. I think you'd have a better link if you argued correlation rather than causation.

8/24/2017 6:36:05 AM

Quote :

"I don't think you have a good handle on why people get credit cards."

I'm pretty sure credit cards were invented to allow consumers to finance purchases they did not wish to pay for all at once, but what do I know? I don't have a PhD in credit card science.

You can disagree with the premises and inferences I've made in this thread all you want, because like I said, I don't have any tangible proof (yet), but you unless you want to provide a link to a peer reviewed article that shows that consumers use them for any other reasons than 1) financing purchases, 2) building up credit, 3) paying off debts (0% interest cards), or 4) using them to acquire a variety of different "rewards" (cash back, miles, points, etc), I'm going to ask you to step off your high horse. Thanks.

[Edited on August 24, 2017 at 10:43 AM. Reason : .]

8/24/2017 10:42:19 AM

BTW, I found this:

http://www.tsys.com/Assets/TSYS/downloads/rs_2016-us-consumer-payment-study.pdf

It's a study that looks at CC consumer habits/preferences, but it's published by TYYS which is a major credit card processor/issuer, so take it with a grain of salt.

I notice two key findings:

1. Consumers are starting to prefer credit cards over debits cards to make purchases for the first time since they started keeping track, but it's hard to pinpoint exactly why. A lot of this may be because of better security, since it's way easier to dispute a CC charge than deal with most banks.

2. Rewards, indeed, are powerful incentives:

Quote :

"Rewards topped the list again this year for being the most attractive feature on our respondents’ preferred credit card. That is a trend we’ve seen since we began our surveys"

If you look at the chart on page 18, it's clear that 59% of consumers consider the types of rewards available to be "attractive features", with cash back being the most frequently redeemed reward (no shit)


I'm not going to suggest there's hard proof that rewards cards are the direct cause of mounting CC debt, since it's only one study, and I question their credibility and methodology, but it doesn't take a ton of imagination to see a potential link between CC debt and the amount of incentives being offered right now. Given that cash back seems to be the biggest feature people look for in a CC, it doesn't look like miles or points are nearly as big of a factor as I thought they might be, so there's that.

[Edited on August 24, 2017 at 11:55 AM. Reason : .]

8/24/2017 11:55:04 AM

Saying that credit card rewards are going to be responsible for the next financial meltdown has to be one of the dumbest things I have read on this site. Take out the moronic position that the rewards are going to be the downfall, do you really think that credit card companies just give out credit limits with little to no thought behind them? They don't want people to default and they are using models to limit their exposure to that risk when not just extending an offer for a credit card, but for spending limits and everything else. These models have to go through extensive validation. You also know that the fed is involved here too and they have to pass various stress testing scenarios? Yeah those things aren't perfect but you act like there is no oversight here.

8/24/2017 1:06:59 PM

^^,^^^Ah tdub, where critiques of an argument with self-admitted "zero substantiated proof" are met with a request to "provide a link to a peer reviewed article" to substantiate the counter argument.

Anyway, your posted data suggests to me that credit card rewards only incentivize consumers to choose a particular credit card over another, not to get one in the first place or to finance more purchases or go further into debt. Which, like I said makes a better argument for correlation than causation with any upcoming "financial meltdown."

8/24/2017 5:54:05 PM

You all need to understand that rewards are not new money but are simply a new form of processing fee that is passed to the consumer on both ends. the only real problem from having too many rewards cards is that merchants are deciding to go off the grid so they can charge lower prices without the fees.

a while ago, banks realized that debit cards were starting to replace cc for easy transactions so the us became the first place with debit card fees. now, our fees are higher than most places so people are moving back to cash. betyer rewards are just another way to nudge them

big companies like hotels and airlines can make arrangements to essentially pay their fees with miles for seats and rooms that would otherewise be empty. they save he transaction fee, the customer gets it, and the bank gets the increased card usage. everyone wins. its almost like moving to a hybrid barter system over cash

0% cards are like free money if you arent trying to buy a house and can deal with the credit usage bumps. invest the balance safely and transfer it to a new, larger balance card each year. no reason not to.

credit is all just a game in place as another class barrier. people who understand the system and know how to game it can gain from it all it the expense of poor people paying 24% interest on the computer they bought to study with so they can get a better education because their current job barely pays them enough to eat. of course they cant afford it but liberal elites like op rather just talk them down and place blame while they keep voting for big bank candidates.

8/25/2017 5:54:00 AM

I am not trying to blame the poor, or Millennials, or really anyone else besides the CC companies for what's going on. I think the Credit Card companies are making it much easier for people who are most vulnerable to piling up debt (i.e. working class people, people who are already in deep debt) to take on more debt by luring them in with cash back offers and to a lesser extent rewards (I already admitted that miles/points aren't as big of an incentive as I may have thought, but rewards are absolutely helping steer purchases towards CCs). I guess my wording in the beginning does come across as elitist in the sense that it's saying that people with less than "good" credit shouldn't be able to get into a position that will do them more harm than good ("shit credit" is definitely not nice, and "giving rewards cards away like candy" is a pretty big exaggeration). The language I used is mostly just describing what I've seen anecdotally: broke family members and friends all having "rewards cards" when I know they already have tons of debt, don't make much money, and I'm shocked they got approved in the first place.

A lot of you are operating under the assumption that there's sufficient oversight in place and that nothing bad is happening or that it can't/won't. Given the types of people running the government now, I am extremely skeptical that enough safeguards are in place. Why? I've already said I see parallels between the predatory lending practices associated with the mortgage/banking industry bubble (surprise! they got away with it) and today's CC companies, many of which are now directly linked to the big banks: Chase, Citi, BofA, etc. A 'meltdown' happens when all failsafes fail- people don't see it coming, and given the responses in this thread, nobody seems to have thought about any of this much, which is reasonable, but kinda scary too.

For those of you saying that it would be terrible business to offer lines of credit to people who are high risk of defaulting, all I can say is that defaults are clearly rising along with debt, yet I am personally seeing more types of rewards cards available than ever before. Are we not? Defaults/charge offs are part of doing business in the CC industry. If you think most people actually want to pay off their debts and build their credit, I would who heartedly agree, and the CC companies know that too. However, I'm guessing there's some type of tipping point where the profits being earned from interest/fees makes up for the number of defaulted accounts.

[Edited on August 25, 2017 at 1:47 PM. Reason : .]

[Edited on August 25, 2017 at 1:49 PM. Reason : .]

8/25/2017 1:42:28 PM

No one seems to have thought of this? Are you really that dumb? Go google CCAR results for the different banks, you can see how their credit card portfolios would perform under severely adverse conditions that would be as bad if not worse than the 2008 economic crisis.

8/25/2017 2:32:11 PM

You are right. Over 1T in CC debt and growing, but the CC companies have got it covered and the feds will come to the rescue as a failsafe. Nothing to worry about [/thread]

8/25/2017 2:40:33 PM

^

existential threats to the system will always be bailed out

8/25/2017 2:41:27 PM

^^ have you read any of the stress test result? Do you understand the methodology? Do you have any idea what goes into modeling credit risk? Of course you don't.

8/25/2017 4:15:05 PM

ElGimpy's first reply was basically /thread. 2008 didn't happen just because there was a shit ton of home loan debt, it was due to a unique confluence of factors that nobody really could have modeled at the time. Even Goldman Sachs underestimated the magnitude of the crisis and would have been screwed if AIG wasn't bailed out. No one actually saw it coming, and anyone who said they did was just a broken clock right twice sort of thing. I would bet on an unforeseen acceleration of retail store closings causing a wider crisis over any sort of consumer debt bubble.

8/25/2017 8:26:28 PM