Who Actually Pays For Credit Card Rewards?

About 90% of all credit card spending is on rewards cards like Delta SkyMiles, Chase Sapphire Preferred or American Express Platinum. And these cards are hugely popular for a reason: you can earn cash back, upgrades on flights and many other perks. In 2019, about $35 billion in rewards was handed out to customers around the country. But how are banks paying for it all? A majority comes from interest earned from low-income consumers who revolve balances on a monthly basis. The rest is from merchant fees and things like annual, over-the-limit or foreign transaction fees. Some economists claim there's an annual redistribution of more than $15 billion from less to more educated, poorer to richer and high to low minority areas - widening existing disparities.

Chapters:
00:00 — Introduction
01:51 — The business of credit cards
04:01 — How Americans spend
07:35 — Redistribution
12:32 — Solution

Produced and Edited by: Emily Lorsch
Senior Managing Producer: Tala Hadavi
Animation: Alex Wood, Jason Reginato and Christina Locopo
Additional Camera: Magdalena Petrova

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Who Actually Pays For Credit Card Rewards?

[alexsteven.m]

Credit card rewards are funded primarily through merchant fees, interest charges, and consumer spending. It's crucial to use credit cards wisely to benefit from rewards without accruing unnecessary costs. How do you typically approach managing your credit card usage and rewards during economic uncertainties?

[CreepahKillahRSA]

To put it simply: don’t spend money you don’t have, and always pay off your monthly debt in full.

[adamduvick]

“If everyone made the rationally correct decision at every point, the banking industry would probably not exist.”
Profoundly true.

[HomebaseLHR]

My Amex limit is about $7, 000 a month. I’m fully aware I could not afford that level of spending, so I only spend about $600-$700 a month because I know I can afford to pay it off, in full, every month.

[kenfrancis]

I treat my credit cards like debit cards. I spend only what I know I have, and pay my credit card off in full.

[mzr]

You need to use a credit card like a debit card. If you carry a balance except for large planned purchase, you're gonna have a bad time

[Richmind-irzi]

I recently realized the importance of using credit cards for the majority of my purchases simply because of the cashback and other reward it provides you. I want to be able to get a house on loan and I am also seeking to buy stocks to grow my money as a newbie. Any suggestions on stocks to buy?

[morganmac-smith]

I am blue collar, I make $700+ in rewards annually and have never paid interest. I think financial literacy is the key.

[saulgoodman]

I never once paid any interest in 20 years.

[walterpreston]

Simply pay it off at the end of each week……… if you know you won’t have the money, stop spending over the amount you earned.

[pkmachinegun]

People in credit card debt got a credit card without knowing how to use it. It’s an education issue, not a credit card issue. I had a bankruptcy because I was stupid and didn’t know how to use credit, then I learned and now I’m raking in rewards with no problems.

[thirteenthhour]

I went in-person to my bank to ask some questions about a new rewards card they were offering. I must have come off as a little clueless because the employee I was speaking to had this moment where he looked at me for a long second, covertly checked where his boss was, and told me quietly, "The bank only wins when you fail. They are expecting you to fail." I personally did not need that warning, but he made a judgement call about my financial literacy and instead of selling me on the card, he tried to protect me. Thank you, bank dude.

[UnfilteredCactus]

This is not a credit card issue, this is a user error issue. Knowing how to leverage debt and maximize the rewards of a credit card is very profitable.

[septimus__Prime]

Don’t even look at the credit limit. You should know how much you can afford monthly, so you can pay it off weekly or by the end of the period. If you can’t pay off the card, then you should use cash or debit card.

[ruedaibanezjr]

Thank you for sharing your experiences and for allowing us to share them with you. Safe trip.

[nicksmith]

I alway pay all cards off in full. I keep them all on autopay, but I keep track via a spreadsheet to make sure I don't overspend. I had a record amount of cash back this year and work actively to maximize our cash back/ travel points from month to month on basic purchases.

[draculemihawk]

Thanks for his video! It's been very informative and educational. I have three CCs Capital One, City, and my debit card from my credit union. I always pay in full what I owe and I'm fully awara of the 30% interest rate.

In this inflation era, I'm trying to use my CCs rarely but it is a colosal task. Until know I have been blessed in being able to pay in full my debt each month ...but CCs are like swords with double edges.😱

[stevenz]

another nice research. keep it up CNBC!

[YoSpiff]

I got in trouble with cards many years ago when I was living paycheck to paycheck. I only owed $2-3, 000 USD, but it was still a struggle to eliminate them. I cut up my cards and closed the accounts. I now have a job with a lot of travel. For the first several years, I could only get $350-500 credit, so had to keep some cash in a separate checking account to cover work travel. My credit then improved from lousy to great over a 3 year period. I do use a card with a cashback reward for travel and I pay it off before the due date. So I make a few hundred $ a year. But I am at a point in my life where I can afford to pay it off. I am well aware of the trap because I have been there. It isn't designed for the benefit of the consumer.

[gktmejb]

How great it is to gain new knowledge with you! Thank you from the bottom of my heart.