Many people sign up to store cards just because they are tempted by initial discounts on purchases or the additional offers that these cards promote such as private shopping evenings or special access to sales goods. Another common attraction is that some shoppers feel a sense of loyalty to certain shops and feel good in themselves about having that store card in their wallet, particularly if the store has some prestige. All this is really false economy because the reality is that shoppers may well end up paying much more for their goods as a result of the high interest charges that many store cards impose.
A 10% discount in store is not so attractive when you consider there may be an annual percentage rate (APR) of up to 30% on your purchases.
Because they often charge much higher levels of interest, many store card providers carry out less stringent credit checks than other providers of loans or credit cards. This means that some people who would otherwise not qualify for credit are being given cards. Many spend beyond their means and cannot afford to keep up with their repayment schedules.
The use of credit facilities is widespread particularly as it is now considered socially acceptable. However, unless you intend to repay the debt within the interest-free period,
in general it is best to avoid store cards. The interest due on outstanding debt can quickly mount up. If you really don't have the ready cash to hand, you would be much better to borrow the money on a traditional credit card or take out a personal loan.
All too often people are unaware of terms and conditions of credit agreements, but it is vital to check the small print on these store cards before signing up. Usually the interest-free period varies between 35 and 55 days and charges also show a wide variation. Some of the highest rates reach 30% and many retailers charge around 20%. Another area to be aware of is the penalty charges imposed if you fail to meet the minimum monthly repayment.
You should always consider whether a standard credit card or a personal loan could be a better option. An interest rate of 14% or lower is available from some card providers and personal loans start from around 5%. Also don't forget that standard credit card companies often promote zero interest introductory offers which can be taken advantage of.
If you already have one or more store cards I would recommend that you pay them off as soon as possible. If you don't have the cash available then borrow the money through a cheaper channel and get those store cards out of your wallet!
Sue Barnard writes on a variety of money saving and personal finance subjects. More of her work can be seen on these personal loans and cheap loans websites. |
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