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Store Cards

When you reach the till with a bundle of purchases at your favourite store, the cashier may try to convince you to open a store card with the lure of generous discounts — perhaps 10% off the first time you use the card.

Sound tempting? In fact, store cards can be one of the most expensive ways to borrow and leave you facing a huge debt if you don’t know what you’re doing.

Why you should avoid store card.

Sky-high interest rates are probably the most unpalatable feature of store cards. In many cases, you will face a representative APR of between 25% and 40% — far higher than typical credit card interest rates. And that’s before we bring market-leading 0% deals into the equation.

Some of the worst offenders are online catalogues — with rates nudging 40% APR — and that means unless you repay the balance on these cards in full, the interest payments will easily cancel out any savings you have made in the form of cardholder discounts.

Furthermore, store card marketing material often boasts you will have ‘access to instant credit’ which could tempt people into spending more than they can afford during the adrenaline high of a shopping spree.

There is also an inherent lack of flexibility in the store card concept. By only allowing you to spend in one store, many of these products not only make you pay through the teeth, they also force you to buy from them for the privilege.

Customers with cards for online catalogues Very and Additions Direct — who charge 39.7% – pay some of the highest rates. After them, footwear chain Brantano and clothing retailers Quiz and USC charge customers 30.9% APR and not far behind, Argos, Dorothy Perkins and Warehouse charge interest at 29.9%.

Is there any upside?

If you are an extremely diligent borrower, it is possible to take advantage of introductory offers to get discounts on your purchases — especially if you are facing a large expense at a particular retailer. To reiterate, however, it is essential you clear the balance in full to avoid paying interest on the debt.

In addition, certain cards offer perks such as pre-sale events, free gifts and discount vouchers enclosed in your statement.

Earn better rewards

If you spend shrewdly on a credit card, you could earn rewards or cashback that would be far more appetising than the majority of store card discounts.

With the market-leading American Express Platinum Cashback Credit Card, you could earn 5% cashback in the first three months — up to £100. Thereafter, you can receive up to 1.25% cashback depending on your spending. You should, however, ensure you clear your balance in full each month or you will start paying interest at 19.9%.

Alternatively, the American Express Rewards Credit Card (17.9% APR Representative) allows you to earn up to £90 worth of vouchers in the first three months which can be redeemed at big name retailers including Boots, House of Fraser and HMV. Note you will need an annual household income of at least £30,000 in order to qualify for this card.

Avoid interest completely

In contrast to the exorbitant 30% rates charged by certain store cards, a number of credit cards will charge 0% on new purchases during the introductory period.

At present, Tesco and Marks & Spencer each offer a market-leading 15-month interest free offer. If you are particularly loyal to either of these brands, you can earn reward points that can be redeemed against purchases with these retailers.

What If I already have store card debt?

If you have racked up a store card debt in the past, you could consider shifting that debt onto a card with a 0% balance transfer period.

At present, Barclaycard offers the most competitive deal with 20 months interest free and a 3.2% balance transfer fee. Should you have a significant debt on numerous store cards, this product could save you hundreds of pounds in unnecessary interest payments. Once the 0% period has elapsed, you will start paying interest at a rate of 17.5% APR Representative.

If you already have debt with Barclaycard, there are other competitive balance transfer deals on the market. For instance, the Virgin Credit Card and NatWest Platinum Plus each offer 18 months interest free balance transfer deals.

By Katy Ward – finance.yahoo.com