Store cards - are they worth it?

When you're standing at the checkout with a great new outfit in your arms, the offer of saving 10 percent on everything can be very tempting indeed. But are the savings you can make today by signing up for store cards really worth it in the long run? Despite the convenience and attraction of discounted goods, store cards do not tend to fare well in comparisons with most other forms of credit. With interest rates as high as 30 percent, most store cards will have you paying more than three times the rate of the best standard credit cards.

Many people think that store cards, with their affiliation to one group of stores only, are less harmful than other types of credit, as they can only be used for a limited number of purchases. Although true, once shoppers sign up and start carrying the 'discount' card in their purse, it is highly likely that they will begin to spend more than before on non essential items, thereby running up greater debts than would have been the case without the card.

There's also a tendency for those with a range of debts to pay off less of their store card balance each month, as the minimum monthly payment required by most store card operators is generally lower than other forms of debt, at only four percent or less of the total balance. As a general rule, however, when faced with a range of different debts, it is usually prudent to pay off the highest rate balances first. This way you can maximise the impact of your monthly repayments.

High Interest Rates

The combination of low monthly repayment and exorbitant interest rates can mean that, even if a store card has only been used for one purchase, your monthly repayments are simply servicing the interest and barely reducing the size of your debt. For example, suppose you were to purchase £500 worth of goods on a store card charging thirty percent interest per year (Annual Percentage Rate). If the minimum monthly payment is set to either 4 percent or £4 (usually whichever is lowest), making only the minimum repayments would mean you would take over ten years to fully repay this debt. When looking at the figures this way, it becomes apparent that the great deal you thought you were getting at the checkout is not so attractive in reality.

As with any form of debt, it's important to read the terms and conditions carefully and familiarise yourself with the repayment requirements before committing to borrow. Sometimes credit is unavoidable to make one-off purchases for essential items, such as school clothes or a new washing machine, but before you sign up to a store's own card, shop around and see if you can get a better deal elsewhere. Make use of the many free price comparison services online to compare as many products as possible. You might find that you can take advantage of a zero percent on new purchases deal, or at least a much lower interest rate on repayments by applying for a new credit card instead. Whatever option turns out to be best for your own situation, just remember to think beyond the initial saving and decide whether a store card is really right for you. After all, if the debt is going to outlast the fashion, perhaps that expensive new designer dress is not as essential as you thought.