Everyone knows that credit card companies make their money by extending lines of credit to consumers, hoping those consumers will carry large balances and pay substantial interest charges each month. Credit card issuers have a hard time making money from consumers who pay off balances each month. But a growing number of card issuers are singing a different tune now that so many borrowers are failing to make even their minimum payments.

I posted last week about American Express paying a number of cardholders $300 each to pay off balances and close out their credit accounts. Now other companies are joining in the effort to provide incentives to customers working to reduce outstanding card balances. Citibank, for example, offered to match a portion of credit card payments for some cardholders making payments above and beyond their required minimum payments. Other companies, including Chase, are tacking on monthly fees or increasing minimum required payments for cardholders that have carried large balances for more than 2 years in a row.

Why are these card companies trying to reduce customer balances? Because they are finding that it is increasingly difficult to collect when consumers fall into default on their payments. During the fourth quarter of 2008, credit card companies wrote off 6.3% of outstanding balances and sent those customers to collections. This represented an increase of more than 2% from just a year earlier.

Over the past several years, credit card companies have aggressively sought new customers, offering promotional interest rates that allowed cardholders to pay no interest for an extended period of time. The industry was profitable overall, so card companies didn’t worry too much about offering so much low interest or interest-free financing. Now that profits are harder to generate with the growing number of customers in default, these low interest lines of credit represent a large risk for credit card companies.

The offers will come by mail to existing cardholders, so keep an eye out for opportunities as they arise. One Citibank cardholder received an offer that Citi would pay a 10% cash rebate for any amount paid over the minimum with a cap of $550. This is real money that should make you consider stepping up your monthly payments if you are in a position to do so. Be careful though, by accepting the offer you are agreeing to all the included terms and conditions, which could include an agreement that you won’t make additional purchases or that you will close out the credit account when the balance is paid off.

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Tags: American Express, Chase, Citi, Citibank, credit card

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