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A chase for reward points often equals crushing credit card debt

A professor of marketing in another state published a paper in 2001 about consumers' reactions when they have the option of paying by credit card rather than cash. He has determined that handing over cash creates a sense of loss that is absent when paying by credit card. Unfortunately, this ease of payment is likely to blame for the overwhelming credit card debt of many consumers nationwide, including some here in New Jersey.

Research for the paper showed that people were prepared to pay much more for items when they could make the purchase with a credit card. When tickets for basketball and baseball were offered to university students, it was found that they were prepared to pay double the amount for tickets if they could pay by credit card. The reality of cash seems to limit spending. A cup of coffee at $5 may seem expensive if a person has only $10 in his or her wallet, but using a credit card with a $10,000 limit, the person may not give the price a second thought.

Consumer advocates advise consumers not to carry credit card balances from month to month but rather settle the cards in full every month. While some manage to avoid excessive amounts of interest by following this rule, others admit to buying unnecessary items to gain reward points from the credit card providers. This marketing tactic of companies to convince consumers to spend more on their cards is often the cause for accumulating credit card debt with the excuse of gaining the advantages of rewards points.

Sooner or later, every consumer realizes that every purchase, regardless of how many reward points were earned, has to be paid. Those who are already trapped in a spiral of ever-increasing credit card debt, and victims of creditor harassment and other actions by creditors, may find comfort in knowing that they can be protected against such actions. As soon as a consumer files for personal bankruptcy, a stay is put on all collection efforts. A consultation with an experienced New Jersey bankruptcy attorney may help consumers understand their options as well as the pros and cons of filing for Chapter 7 or Chapter 13 bankruptcy.

Source: The New York Times, "Credit Cards Encourage Extra Spending as the Cash Habit Fades Away", Nelson D. Schwartz, March 25, 2016

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