The holidays are here again, which means that the shopping season is in full swing. Last year, Americans spent enough money to put them into an average of $986 in debt per person. One of the reasons is that retailers encourage customers to spend more by using their store credit cards.
Although using store credit cards can help keep people’s holiday spending separate from their regular credit or debit cards, it’s not always the best option. Store credit cards can be tempting to use because they usually offer zero percent financing, discounts or both. However, too often, the risks outweigh the perks, as you can easily fall into the trap of debt.
Risks of Zero Percent Store Card Financing
It’s essential to pay attention to the fine print when you get a store credit card that offers zero percent financing. This is because there is a remarkable difference between waived and deferred interest. Most store credit cards offer the latter, with which you can receive a charge if you fail to pay the promotional balance within the promotional period.
Store cards also tend to charge high interest rates. For example, hardware store Lowes charges a regular APR of 26.99 percent on its card, regardless of your credit score. If you pay off your balance in full during the promotional period, you don’t have to worry about the APR, but if you don’t, you will be stuck with hefty interest charges.
The best route to take if you want to finance your holiday spending is to open a credit card that offers a zero percent introductory APR. Fortunately, most credit card companies also offer cards that waive the interest during the promotional period. These are better for the following reasons:
- Zero percent introductory offers are usually longer with bank cards. Store credit cards typically offer these perks for six to 12 months, while banks offer them for 15 to 21 months.
- Post-introductory period interest rates are lower with bank credit cards. The APR is also based on your creditworthiness. That means if your credit score is good to excellent, your APR rate will be lower. Higher rates are still lower than those on store cards.
- Banks usually waive interest rates during the introductory promotional period. You are then charged interest on your remaining balance if you still have one after it expires.
Risks Associated with Store Discounts
Stores will always try to lure customers with attractive perks associated with using their cards, but there are specific risks of which you should be aware:
- Applying for a store credit card means that the associate will perform a hard inquiry on your credit report. It may not affect your score if your credit is excellent, but if you open several accounts within a small time frame, it can significantly impact your credit score.
- Consumers with a store credit card tend to spend more than they planned, which can lead to a debt trap.
The holidays are a time when people spend more, which means it’s easier to wind up in debt during that time. The best thing to do is to create and stick to a budget for your holiday shopping. Set a budget that you can reasonably afford and don’t let store credit cards trap you. If prior credit card debt issues are keeping you from opening new lines of credit, speak with the Illinois credit card debt settlement attorneys at Benveniste Law Offices. Attorney Heather Benveniste can negotiate with creditors and lenders to settle your debt on the most favorable terms to you. Contact us today for a free case evaluation