Holiday Store Credit Card “Deals” Often Lead to Big Debts, Bad Credit

If you’ve been to a department store or shopping mall this holiday season, chances are a cashier has asked if you’d like to save money by opening a store credit card.

At retailers from Macy’s to Best Buy, opening a store card can save you anywhere from 5 to 20 percent – a pretty appealing discount when the holiday shopping bills are already starting to mount. And with many stores offering introductory 0% interest rates, what’s not to like?

Quite a bit, as it turns out.

Store credit cards are notorious for hurting credit. Often times, those introductory rates are only good for a short period of time, like six months. If you aren’t careful to pay off your debt in full by the deadline – even if you’re just a couple bucks short – many retailers will retroactively charge you the full APR for your entire balance.

Since retail cards often come with higher APRs than traditional credit cards, you could suddenly go from paying zero interest to 25% or more on your purchases.

Store cards also tend to have lower credit limits than regular credit cards, making it all too easy to get dinged for carrying a too-high debt-to-credit ratio (the amount of your balance vs. the amount of your available credit).

Even the act of applying for a store credit card can degrade your credit score, as the retailer will need to submit a credit report inquiry to approve you. Each inquiry drops your credit by a little bit – and too many inquiries within a short timeframe can cause serious damage.

It’s not just that store credit cards come with lots of drawbacks; they also offer few rewards.

While traditional credit cards can be used responsibly in order to build credit, store cards aren’t accepted in locations other than where they’re issued - limiting their ability to grow your good credit and lower your bad. For example, you can’t use them to buy necessities like groceries and gas – only to buy luxury goods.

Now, not all retail cards are bad. If you are loyal to a particular brand, are disciplined about paying off your balance and have read the fine print, it might be worth it to open one credit card that will provide significant and consistent discounts.

But beware of opening too many cards or of failing to weigh the benefits with the risks.

In a recent study by CardHub, 42% of stores offering financing options charged deferred interest. Of those, 41% weren’t upfront about terms. Just 29% of retailers made it easy to find information about pertinent details, such as how much interest will be charged once the introductory period is over.

With the average household already carrying $6,700 in credit card debt, most of us can’t afford another financial fiasco. If you’re already struggling under the weight of too much debt, making minimum payments and fending off bill collectors, adding new cards – store cards or otherwise – will only make your situation worse. What you need is a debt solution.

For many folks, bankruptcy is the answer. By filing for bankruptcy, you can eliminate unsecured debt like credit cards. With Chapter 7 bankruptcy, it may be possible to get out of debt completely in a matter of weeks.

Why waste another day stressing over debt? With the right bankruptcy plan, you can enjoy a brighter financial future. Now that’s the gift that keeps on giving.

To learn more about how bankruptcy can provide lasting debt relief, contact DebtStoppers for your free personal debt evaluation with one of our expert bankruptcy attorneys.

Resources:

Buyer Beware: Retail Cards Have Costly Trap, by Blake Ellis, CNN Money