Advantages and Disadvantages of Store Cards

Most of the major department store chains now have their own store cards, which are just like credit cards except they can only be used for purchases at one of these stores. If you regularly shop at one store, then you can benefit from having a store credit card so that you can avail of any specials or sales that you notice and do not have the cash readily available so that they you can buy the items.

To obtain one of these cards, all you have to do is pick up an application in the store, complete all the required sections and send it in. Sometimes, there may be agents walking around the store who will approach you and offer you a great deal on one of these cards if you don’t already have one.

When you first get one of the store cards, it is likely that you will have a low credit limit. However, when you make regular payments and reach your limit, you will notice that when you receive your statement, you have a higher credit limit.

If you want to avoid paying interest charges on the balance on the card, you can pay the amount off in full when the statement arrives or you can choose to make the minimum monthly payment and spread the repayment out over the course of a few months or even a few years. Many stores also offer the option of accumulating air miles with every purchase so that you could save up your miles and have a free trip.

While the benefit of owning one of these types of credit cards enables you to shop more often at your favorite store, this is perhaps the only benefit to consumers. The interest rate is extremely high and if you pay attention to your monthly statement, you will find that the minimum monthly payment is made up mostly of interest charges. It could even be that the amount of the payment doesn’t even cover the amount of interest charged for the month if you have a high balance owing on the card.

At best the amount of money that will be applied to the balance after the interest comes out is very little and it will take you a very long time to pay off the balance by only making the minimum payment. If the interest is not paid in full at the end of the month, the amount remaining is then added to the balance so that you could actually owe more even after you make the payment.

Store cards are one of the main contributing factors to increasing consumer debt. With such a card in your wallet, the temptation to buy on impulse is always present every time you enter the store. When you first get the card, there may be incentives such as a low interest rate for the first six months, but it is important to read the fine print to find out how much this interest rate will be at the end of the introductory period.

The savings you are promised don’t pan out because they are consumed by the interest charges. Also, these stores have sales staff that will ask if they can help and will often point out items of interest that you didn’t intend purchasing but end up doing so anyway.

Another disadvantage of a having a store card is that you can only use to make purchases. You cannot make cash withdrawals using the card, even at the store. You cannot use it at other locations either, which means that this type of card is useless to you in the event of an emergency for which you need cash. In this case, you are better off with a credit card from a bank that you can use for all occasions and for cash withdrawals at an ATM machine.

Even though you can use a credit card from a store at any of the store locations, you are restricted somewhat in that if the same item is cheaper in a store of a different name, you cannot use your card to make the purchase. Therefore, you often pay a higher price for a particular item that you would if you used a credit card or made the purchase with cash or debit. When you do buy items that are cheaper than in other locations, you actually pay more for them in the end because if you don’t pay off the balance at the end of the month, then the interest charges you have to pay actually increases the price of your purchases.

Before you apply for and use any store cards, weight the advantages and disadvantages of making such a move. Even the rewards you are offered may not turn out to be rewards at all and in fact may actually cost you money.