Impacts of Credit Card Incentives Packages

Question: Discuss about the Impacts of Credit Card Incentives Packages. Answer: Introduction The purpose of this research paper is to give a literature review on the effects of credit cards incentives packages on consumer borrowing. It reviews the literature about credit cards on the basis borrowing and the nature of credit cards at large. In so doing, the paper intends to discuss various types of credit cards and their effects on various borrowers. Although the paper major mainly on the effects of credit cards on consumers, it is also important to determine the nature of these impact in terms of negativity and positivity. Fortunately, these are also covered in the paper. Observably, not all impacts come immediately; others are long term effects. Therefore, the paper will give a clear analysis of the effects, not forgetting their effects on default borrowers. The research findings are based on credit card borrowing examination. Consumers, companies and businesses were also interviewed to come up with the entire findings which as will be evident, shows that even though credit cards have some disadvantages, their advantages are of more weight and hence, affect consumer borrowing. Literature Review Literally, a credit card is basically a payment card used by consumers to make various payments. These cards enables the users to pay for goods or services and promise to pay at a later date. According to NERDWALLET'S (2016), there are many types of Credit Card Incentives Packages. These types (forms) of credit cards are dictated by various interest rates and fees programs hence, the course of most effects on consumer borrowing (Zhang Agarwal 2015). Therefore, this segment of the paper is important because it gives complete directives of choosing a suitable credit cards depending on the income of the borrowers. In other words, a consumer will chose a credit card based on his financial ability and lifestyle as he reflects to the future because effects of some types of credit cards are predictive (Starbuck Woolsey 2015). As the first type of credit card package, standard credit cards are readily available for borrowers. They can easily be obtained from any bank stone throw away hence , easily accessible by any borrower irrespective of their income level (Q Articles 2016). Their commonly used nature is also contributed by their suitability. Therefore, standard credit cards have a direct impact of increasing the rate of consumer borrowing irrespective of the type of standard credit card. As the most preferred form of standard credit card, balance transfer credit cards enables borrowers to transfer high interest credit cards at a lower cost. The second type is low interest credit cards that equally attracts more borrowers as it provides lower introductory APR (Obama Signs Credit Reform Bill' 2009). However, this APR is set to rise to a higher level after some time. The second form of credit card is credit cards with rewards programs. This brand imposes relief benefits on consumers hence, a positive effect. They allow customers to obtain incentives when they make purchases with their credit cards. In this set of credits, there are cashback credit cards which allows customers to earn money rewards for any purchase made and general reward points cards where points are earned upon making purchases (Sidel 2015). These points a re later awarded. Other types of credit cards with award programs are hotel of travel points credit cards, rebates and retail award credit cards. To sum up, any business has specific strategies of reaching many consumers, attracting them and retaining them. In the same way, credit card companies provide types of cards that retain their customers by pleasing them in one way or another. Examples of such cards are the frequent flier credit cards, where a consumer can be awarded to fly freely in courtesy of his loyalty and consistency (Birukova 2016). Another common business strategy is lowering account fees for regular customers (Navarro-Martinez et al. 2011). In the near future, some organizations may adjust their credit conditions as an incentive. For instance, allowing zero payment until the first six months from the start of the deal are over. On a different dimension, other companies go further to offer capital incentives to help a customer to open and use new accounts. Alongside, such companies offer considerable bonuses for loyal consumers whose accounts have lasted over time. Quite a number of incentives are designed favorably to motivate consumers to make large transactions. The design allows customers to make purchases without payment until a later date. The various types of credit cards are characterized by positive and negative impacts. Stating the advantages first, credit cards enhance record keeping through the credit card statements. These statements ease the tracking of individuals expenditures. Furthermore, some credit cards give year-end summaries that aid out especially at tax time. The credit card companies also offer low-cost loans which implies that a consumer can utilise resolving credit to save on daily basis. They also allows instant cash flow where cash advances are made quick and too convenient to allow customers to access cash at any given time when need arises. With the credit cards, there are various programmes that suits all the targeted consumers. These programs range from frequent flier miles to discounts at various levels. Generally, many credit cards organisations give intensive programs which are determined by the number of purchase made by an individual. Other advantages are purchase protection that enables the companies to handle disputes in a more considerable manner. Most importantly there is a balance surfing where the companies offer low introductory interests rates, allowing consumers to move their balances to low rate cards (Livingston 2016). Lastly, credit cards build positive credit that enhance the control the use of control cards that further enables the establishment of credit for the new applicants (Debbaut et al. 2013). It also enables consumers who had had problems in the past to rebuild credit. Alongside these advantages, credit cards also have disadvantages on borrowers and all through the economy. It promotes overspending, that is made possible through resolving credit. There is also instances of paperwork, another disadvantage that requires one to save receipts recheck them on monthly basis, less overcharging may occur. Instances of high-cost fees especially for when one misses a payment is also another disadvantage. And in some instances, unexpected fees occurs, a scenario that makes cash advances to carry high interest rates. However, these highlighted disadvantages have negative impacts to the economy. The highly affected group is customers, a useful component of any business. However, the numerous advantag es of credit card neutralises the demerits to the extent of overcoming them and maintaining the business and economy as a whole. Therefore, Credit Card Incentives Packages increases consumer borrowing rate through their conveniences. Irrespective of the impact, some of the credit card effects are short-term while others are long-termed. Never the less, most of these impacts are beneficial in all dimensions of business hence, boosts the rate of borrowing. Effects on Consumer Borrowing Credit card borrowers give revolving credit accounts to businesses with different credit limits, interest rates and terms. In this line most consumer are benefited (Laura 2011). In times when the number of new applicants is minimum or considerately low, respective organizations dealing with credit card always deploy the use of promotional incentives to boost the rate at which applications is taking place hence, high number of consumer borrowing. These credit cards incentives are meant for encouraging high rates of borrowing which has greatly increased and therefore, imposing several impacts into the economy, either directly or indirectly. It is equally important to understand the impact of these credit card incentives on the consumer borrowing because it builds a foundation for knowing how credit card organizations affects the entire economy. From the literal view of various types of credit cards and their advantages, it is evident increase in number of borrowers is an invading effec t. This increase is promoted from various angles and strategic all through the business. Basically, increasing the number of borrowers is meant to earn more income to the company by broadening the market. On its nature, the risen number of borrowing also have numerous effects on the customers themselves and to businesses as well. Credit card companies feel the effect of brought by increased borrowing number over a short period of time (short-term effects). Some of the effects may also come after a longer period. An immediate effect is the increased revenue for the credit card organizations that provide incentives. The advantage of this effect is that borrowers evident a relief on their purchasing power. However, it is equally a disadvantage at the same time. High number of borrowers indicates that every transaction made to the company on credit cards makes consumers to dig dipper into their pockets compared to an equivalent cash purchase due to the interest that are charged on balan ces. From a shallow perspectives, the effect portrays a picture of economic ladder in the entire line of business. However, this has greater benefits to the credit card companies compared to common consumers. As the companies obtain more income, the effect directly reduces consumers' personal profits over time, hence lowering consumer borrowing. Effects on Consumer Default Economists who currently conducted research on credit card incentives have revealed that around four percent (4%) of the entire credit cards fell into default as per the 2013 economic report (Johnson 2011). Considerably, this is a recommendable trend that has been rising on a yearly basis as from 2010. This statistics reveal that credit card incentives can give a greater access to credit for especially to people who have been experiencing low income as per their financial history hence, cannot secure a credit card account. Considerably, this may lead to the rise on the number or amount of credit defaults in the market (Thornhill 2010). In other words, trends of default can impose a greater impact on credit cards borrowing throughout the economy. This is because, as many consumers default on credit cards, affording them in the first place may be extremely difficult for them. Furthermore, few or completely zero lenders and creditors may be willing relate with them through businesses he nce, reducing their chances and at the same time increasing the cost of borrowing. Therefore, this can further reduce the rates of consumer borrowing. Long-Term Effects Credit Card Incentives also have long term effects on consumer borrowing. These effects can be judged by examining various types of credit cards hence, must be considered by the borrowers, and as far as their financial planning is concerned for their planning. Therefore, long term effects of credit card incentives are advantageous to consumers because they help them to plan adequately for the future (JO 2010). This comes along many more advantages. Evidently, many customers especially those who took advantage of the incentive may have utilized their credit cards responsibly hence, easing their access consumers' access to credit and finally increasing the rate of consumer borrowing ('How Borrowers Are Affected 2004). At the same time, this mechanism offers a longer-term income promotion to personal businesses and many more companies. On the same note, others consumers may also want to struggle to keep their balances as low as possible, which may also contribute to the increase in cons umer bankruptcy (Francis 2016). However, this majorly occurs after a long period of time. Conclusion This paper has discussed the literature review of the effects of credit incentives packages on consumer borrowing by examining all aspects of credit card and the targeted market. The papers has given a detailed coverage of types of credit cards, their advantages and disadvantages. For every bit of discussion, the paper has dwelt majorly on the impact of credit cards on borrowers; some effects are identifies to be short-termed while others are long-termed. It is also observed that some effects relate directly to the default borrowers. Most evidently, increase in number of borrowers has come out as a major effect of Credit Card Incentives Packages. To reach this end, the paper started by examining different types of credit cards through their advantages and disadvantages. It went further to highlight their types; standards credit cards, credit cards with rewards programs, airline mile or frequent flier credit cards, prepaid credit cards and bad credit/credit repair cards as major ones. As shown in the better portion of the paper, these types of credit cards imposes both short-term and long-term impacts. Apparently, most of the effects are positive as they enable quick and affordably borrowing which benefits all type of consumers, including the ones with low income. Not mentioning the bonuses for loyal and subsequent consumers, borrowing is also allowed free over a duration hence increasing the number of new credit cards borrowers and hence, boosting the economy for personal businesses and to companies as well. To sum up, a key effect of credit card identified is their capability to increase consumer borrowing rates through different aspects. References Birukova, V 2016, Advantages and Disadvantages of Credit cards. B2b Directory. Debbaut,P., Andra C. G., Kudlyak, M., and Romero, J 2013, How Risky Are Young Borrowers? Economic brief. Francis, C 2016, The advantages and disadvantages of credit cards. Money super market. 'How Borrowers Are Affected', 2004, New York Times, July, MasterFILE Premier, EBSCOhost, viewed10 September 2016. Johnson, A 2011, 'BofA Reinstates Card Penalty Rates', Cardline, 11, 18, p. 45, Business Source Premier, EBSCO host, viewed 10 September 2016. JO, T 2010, 'Credit card issuers forced to play fair', Mail onSunday, 26 December, Newspaper Source, EBSCO host, viewed10 September 2016. Livingston, A 2016, Money Crashers. Advantages Disadvantages of Credit Cards Do They Help or Hurt You? Credit Cards. 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