We all love a bargain and when we’re faced with a store card offer at the sales counter as we make a purchase, the temptation can be difficult to resist. At face value store cards can seem appealing –discounts on purchases, invitations to promotional and preview events, extra money off in the sales, and glossy member magazines – and after all, they’re just another credit card, aren’t they? In fact, no, they’re not just another credit card. Although they may offer some tempting perks, they can be very expensive methods of borrowing that can lead to spiralling debt if the balance isn’t paid at the end of the month. There’s no reason why you shouldn’t open a store card account if you’re sure it’s going to be an appropriate financial arrangement for you – but you should weigh up all the pros and cons carefully before you make any decisions.
Check interest rates and hidden fees
Lurking behind the fabulous special offers and discounts are various potential charges and fees that could send your debt soaring out of control. For a start, the interest rates can be more than double those of bank credit cards – sometimes as much as 30% APR. And then there’s the hidden charges, which can really catch you unawares. Watch out for penalties for late payments or for defaulting on payments. Some cards even charge interest from the purchase date if you don’t clear the balance at the end of the month.
Pay off the balance if you can
Why shouldn’t you take advantage of the offers if they’re there for the taking? You could save a lot of money by opening a store card (for example, discounts of up to 20% may be offered with your first purchase), as long as you are sure that you will be able to pay the bill before interest is charged. Check what the bill period is – it’s normally 30 to 50 days. Also find out whether there’s an interest-free introductory period.
Work out a budget
If you plan to spend a lot using the store card, work out a monthly budget of how much you will need to set aside to pay the bill, to determine whether you can afford it before you sign up to anything.
Investigate other credit options
Store cards seem to easy to set up – just completing a short form in front of a sales assistant who’ll make a quick phone call to arrange it all for you – but these days it’s really not difficult to obtain credit from a bank, and you’ll normally get better rates with a bank credit card than you would with a store card. Shop around before you make any decisions – investigate what the banks have to offer.
Don’t be afraid to ask questions or say no
Sales assistants can be quite persistent – they’re often on commission for the number of store card accounts that they open. Don’t allow yourself to be bullied by them. Feel free to ask any questions and take as long as you want to mull over it. In fact, you don’t need to sign on the spot – take the forms and documentation away so that you can examine them in detail at home before making your decision.
Don’t go overboard
One store card might be tempting, but don’t get carried away. The more store cards you have, the more difficult they’ll be to manage and keep track of – and that’s when your debts can start to spiral out of your control.
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Benedict Rohan Website: www.mortgagenation.co.uk
Benedict Rohan works as a freelance finance writer. Remortgages.
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