Nowadays, you can hardly ever walk out of a large retail chain store without the cashier asking if you want to apply for a store credit card. These cards offer excellent discounts on your purchases, and who doesn’t love a good discount?
Shopper after shopper falls into the trap of applying for store credit cards mainly so they can pay less on their transaction balance. It’s easy to be lured further in when stores offer discounts if you use their credit cards both in the store and elsewhere.
But corporations pounce with high interest rates that will have you paying far more than you save over the long run.
Interest Rates Are Rising Rapidly
The biggest threat from these cards is the high interest. Unlike a fixed APR on your mortgage or auto loan, credit card interest rates shift up and down from week to week and can jump based on government reserve decisions.
Interest rates could rise all over the country if the Federal Reserve decides to raise its rates. This will directly affect your store credit cards: they’ll see a spike in interest if the Fed mandates an increase in December. Since the Fed hasn’t raised interest rates since December of 2015, the odds of a rate increase are higher than usual.
Store credit cards are infamous for their high interest, even when interest rates aren’t rising around the country. It’s a sneaky way for stores to make more money.
They readily offer credit cards to shoppers with a surface credit check and no strings attached. Then they’ll fix you with an average of 15 percent interest rate on your credit. Some have a rate as high as 24 percent.
If you can’t pay off your balance at the end of the month — and the majority of shoppers don’t — you’ll be paying through the nose for your “free” credit card.
Paying for Your Free Store Credit Card
There are several ways that store credit cards get you to spend far more than you would have without the card. Here are some of the other traps they use to lure you in and take your money:
0% Financing
A lot of cards will offer 0 percent financing on all purchases for the first few months of use. Because there’s no interest, it’s tempting to put a lot on your card with the intention of paying it back. The vital thing to remember is that 0 percent financing will end eventually. Then you’ll be faced with a 15 percent interest rate attached to your already high balance.
It’s not worth the risk. When all’s said and done, the interest rate on most bank credit cards is much lower than the average interest rate on your store card.
The Mailing List Trap
Another common trap is the mailing list. Once you sign up for a credit card, you give the company your email, which automatically puts you on a mailing list. Through email, you’ll receive multiple offers and deals exclusive to store credit card holders.
It seems like a harmless thing, but advertisements have a greater influence on us than we’d like to believe. Chances are, you’ll spend more than you had initially planned just because you’re given an opportunity to “save.” This encourages you to use your credit card and rack up debt.
Avoiding Deep Debt for Store Credit Cards
It’s not entirely wrong to apply for store credit cards. The one-time discount you receive for using it can take a huge burden from your bills.
If you know you’ll be buying something that costs $500 anyway, it may be worth the hefty 25 percent discount to apply for the card just the once. However, this should only be done if you can pay off the debt quickly and cut up the card as soon as you get home.
It’s essential to use the credit cards that will get you best perks without the hefty interest rates. In almost every case, those will be bank credit cards. Don’t fall into the trap this holiday season of applying for a credit card that will drive you deeper into debt and have you paying far more than you saved.