FINANCIAL FOCUS: Dangers of Store Credit
With a surge in shopping due to holidays, you’ve probably heard it a multitude of times recently: “If you open a credit card with us today you’ll save 20% off of your total purchase right now!” The temptation to sign on the dotted line for the instant discount and pay-later feature is right in front of you. If kicking that can down the road and cashing in on a sweet discount seems too good to be true, then it is too good to be true, says Kentucky Employees Credit Union VP of Lending, Myron Moore.
Here are a couple of really good reasons to avoid store cards:
You’ll get no favors in the interest rate area
Store credit cards typically have an interest rates from 20% to 24%, says Moore.
“Paying the balance off in full means you don’t pay any interest, but the problem is that most of us are strapped for cash after holidays and it’s easy to make the minimum payment and convince yourself you’ll pay it off later,” explains Moore.
The issue, he says, is that the one-time swipe turns into two or three or four, to the point your card is maxed out and your minimum payment is barely covering interest.
Late fees will further destroy your attempt to pay it off
“Don’t even think about paying late,” says Moore, who explains that most store cards pack their late fees with a $30 or $40 punch – all of which is disclosed in the fine print when you agree to open your card.
“The good deal you were vying for can be quickly negated if you pay late,” says Moore.
So what’s the best option?
Budget over borrowing
“The best advice is to have a budget when you shop and stick to your budget. Only buy what you have the money to pay for,” says Moore.
For those who are terribly cash-strapped, there are other options.
“If you really need to borrow money for holiday shopping, get a Holiday Loan from KECU and that way you know exactly how much money you have to spend and you know exactly how much it will cost you each month, and you know the loan will be paid off in one year or less – no surprises,” says Moore.
For more on our holiday loan, check out our signature loans page (https://kecu.org/personal-loans/). For more budgeting tips, check out our financial wellness Money Ed portal (https://kecu.org/financial-wellness-center/).