My favorite store offers a credit card.  Should I apply for one?

We all love a good bargain, and at the checkout counter when the salesperson smiles at you and proposes an additional discount on the items you’re about to purchase it is enticing.  They may even look at you like you’re crazy to not ‘save’ money by accepting their generous proposal.  The question is, is applying for a retailer credit card really such a good deal?

These types of retailer cards often may offer significant discounts at the register, but be careful!  Remember that credit card companies and retailers are looking to make a profit and there is a reason they’re willing to discount your purchases in exchange for signing up for their branded credit card.

These cards typically have very high interest rates topping 27% in some cases, not to mention the rates will get even higher if you miss a payment and end up with a higher default rate!   Think twice before you sign on the dotted line at the checkout counter!

Good Credit Sense:

Pay attention to those attractive 0% interest offers that are often associated with retailer offered credit cards.  The 0% interest period is usually a few months to a year and it sounds like an easy way to be able to afford your purchases without a penalty.  What may be less clear is that each month the interest associated with your purchases is calculated and tracked, and if you fail to pay off the balance before the promotional period ends, all the interest that you would have been charged will suddenly show up on your statement.  For example, let’s assume a customer named Josh applied for a retail credit card that offered a 12-month period of 0% interest (often referred to “same as cash”) and purchased $2000 of merchandise.  Fully intending to pay off the balance before the end of the 12-month period, Josh lets his balance continue without paying down the balance on the card until the promotional period has expired.  If the APR of the card is 27%, when the 6-month 0% interest “same as cash” period expires, he’ll get hit with $612 of interest because he failed to pay off the balance.  What’s more, with a balance of $2,612 he’ll get charged almost $60 in interest each month!

Next time you’re offered a tempting discount or no-interest period at your favorite retailer, remember that unless you’re disciplined you could be handing over more of your hard-earned money to your favorite retailer in the form of interest and fees.