There you are: you’re in the department store, and you’ve picked out some great new shirts and jeans. Then you walk up to the register with your handful of purchases. You dump them on the counter and reach into your pocket to pull out your wallet.
But just as you’re bracing to see how much you’re going to pay, the clerk who’s ringing up your items asks: “Would you like to save 20% today by signing up for our store card?”
In that moment, it seems like a great idea to get the store card. After all, you get 20% off your total bill — that could be $30 or $40, depending on how much you’re buying. And then you get some rewards on future purchases in the store, too. Sounds pretty good, right?
The problem is, these store credit cards are a trap. They hook you with an appealing upfront offer and then get you stuck with more debt than you can afford. Don’t believe me? Let’s take a look:
Store Credit Cards = Super High Interest Rates
When it comes to credit cards, the thing that matters the most is the interest rate. Unless you have complete financial stability, there is a chance that you’ll end up having to pay those interest rates for a long time, especially if you wind up with a large balance.
While the average credit card interest rate hovers around 14% or 15%, the rates on store cards are usually much higher.
For example, one study of store cards in New York found they had an average interest rate of 23.83%. Holy moly! I don’t care where you live — that’s a high interest rate. Assume for a moment that you put $200 of purchases on it per month for one whole year. By the end of the year you would have a balance of $2400 on it and you would be paying a whopping $570 per month of interest!
Can you afford to have $570 per month gobbled up by interest charges? Yeah, me neither.
That’s why it is so important to avoid those store credit cards. The interest rate might not seem to make a big difference when you’re standing there at the cash register thinking of the money you’ll save on your first purchase. But if you underestimate it, you could find yourself in a deep hole.
Store Credit Cards = Too Easy to Overspend
The other big problem with store credit cards is that they make it too easy to overspend. After all, the card is sitting right there in your pocket! It feels too much like free money, which is dangerous — because, as we know, it’s anything but free.
I once had a Macy’s card, and while I fortunately did not ever carry a balance on it from month to month, there was definitely a feeling of temptation, or at least, a feeling that I could easily get whatever I needed at Macy’s at a moment’s notice. It’s an addicting feeling when you know anything in the store can be yours with just the swipe of a plastic card. And while I can’t prove it for sure, I feel that I ended up stopping by Macy’s more often when I had their store card (I’ve since cancelled it).
You’ll likely find the same is true for you if you ever get a store card. Whatever the store is — whether it’s a department store, a retail store, a home improvement store, you name it — you will likely find yourself being drawn to visit the store more often and spend more than you otherwise would like to.
But don’t risk it! Instead, try to bring cash, a check, or a debit card whenever you go to the store (or worst case, a regular credit card). Whatever you do, don’t opt for the store card unless you have insane amounts of willpower and a very stable financial situation. If you can stay away from store credit cards, it will almost certainly help your finances in the long run.
Image credit: 401(K) 2013