Store Credit Cards: Worth the 10% Off?

“Would you like to save an additional 20% off your purchase today by signing up for a charge account with us,” is often urged at your favorite stores when checking out. Saving money is always a great idea...right? The following blog will explain the ins and mostly outs of these store credit cards many people are drawn into.

Your new store credit card has very high interest rates, usually around 20% and more. Although you may save $20 here and there, a grace period is usually not present. A friend of mine recently told me how she called to check the recent transactions on her Macy’s Card, when the service representative explained that her card would no longer have a grace period, interest would start incurring the day any purchase is made. These cards love to draw customers in with the savings, but then drown you with interest. Forget about defaulting because missing one payment by even a day will cause the interest to sky rocket over 30%. These cards are not like regular credit cards that you probably always know how much is revolving on them. Store cards are hidden in a way were people like to forget about them. When I was in college, I missed a payment on a new store credit card because I wasn’t living at home and didn’t get the bill. I had the money to pay for the purchase but forgot I even charged anything on this card. Store cards also charge a late fee, which was around $10 for this card. My interest went from 22% to 34%, so I immediately paid the whole balance and closed the account to eliminate this problem in the future.

Store cards also have a much lower minimum payment than other credit cards. This amount is about 5% of the total balance. This means if your card has a balance of $200, the minimum payment would be $10 and the interest, $4.40. Paying the minimum will take over 50 years and the interest would turn out to be more than the original balance. Glad you saved the 20% now?

Some store cards, like Best Buy for example, will charge you no interest for 90 days on purchases over $200 or even better, 12 months no interest for purchases over $1000. This may seem great, and you probably think that you will be able to pay the purchase price off by the time the promotional period ends. Most this doesn’t happen, and people tend to carry a balance after this period. Even then, the 20% interest might even be backtracked to include the interest in the promotional months with some cards. Tricky indeed, this cards should be avoided at all costs.

Store credit cards are not worth risking 50 years of repayment on. It would be a great idea to just use a debit card or cash to pay for these small store purchases. IKEA, a modern furniture and home accessories store, will give customers about 1% back on all debit card purchases as a coupon for their next visit. This 1% may seem like a small amount but it is a lot better than getting caught in debt. Store cards aren’t worth the trouble.