We all know how it goes. You are standing at the register to make your purchase and the sales associate asks you if you are already a store credit card holder. If you say “No” you can anticipate hearing the pitch, “If you apply now you’ll receive a great discount on everything you’re about to purchase!” Sound familiar?
Receiving that instant discount, which often can be up to 20 percent off, can be a very enticing and sometimes even compelling incentive. In some instances you could stand to save hundreds of dollars on a large purchase. These alluring offers can make it easy to say “Yes” without thinking of all the possible repercussions.
Do not be afraid to “Just Say No.”
We’ve all felt pressured at the register by a clerk trying to get us to apply for a store credit card. This pressure increases during the holidays. When our spirits are high we look forward to the Joy of Giving and may rely on retail store cards to fill the gaps in our budget. However, once the holiday season is over, the regret of deciding to get a new credit card begins to settle in and we think of all the ways we could have made it through the holidays without spending the extra money.
You should not feel pressured into taking on the financial commitment of a new credit card. Applying for more credit is something you should consider before entering the store and not at the last moment as you are checking out. Considering your options and making your decision prior to your shopping experience will increase the likelihood that you make the very best financial decision for your situation.
Before deciding to take on a new retail credit card, like other credit cards, you should take time to carefully consider the terms and potential risks that you may be walking into. If you will maintain a balance on your new credit card for a few months you will easily be paying back any discount or incentive you may have received at the register and more in the form of interest.
Additionally, when you submit your application you share personal data that is stored and used to track your spending habits and purchases. Future solicitations and offers are customized and targeted to your particular preferences as a result.
Although retail store credit cards do provide unique rewards and perks to their customers they conversely also have very high interest rates and often begin with low credit limits. In many cases the interest rates of retail store cards rival rates that subprime borrowers are typically forced to pay. According to CreditCards.com the largest retailers in the U.S. offer store credit cards with APRs averaging 23 percent, approximately eight percentage points higher than the national average for other types of cards.
What does all this mean for you, the customer? If you apply for and receive a retail store card and make one thousand dollars in purchases, with the 23 percent interest rate mentioned above, making just the minimum payment you will end up paying $840 in interest alone. At this rate it will take more than six years to pay the balance in full. On top of these risks, adding one more credit card to your wallet will likely have a negative impact on your credit score if you are not careful about how you manage your credit and finances.
Exercise discipline when making any credit card purchases. If you pay off your card balances in full every month an you are not planning to take out any new vehicle or home loans in the foreseeable short term future and you think the retail store credit card will save you some money, take the leap! You owe it to yourself, however, to consider the risks as well as the benefits before making your final decision.