The dangers of store and credit cards

Credit cards and store cards are two similar types of credit with a number of marked differences. Many consumers in the UK use credit and store cards to fund their purchases, and these cards can offer convenience, ease, and flexibility. However, if they are not used sensibly and responsibly these cards can quickly lead to problems. There are pros and cons to using credit and store cards, and for those that are able to exercise self control they can be an effective means of short term credit. However, for many others they can quickly turn into a debt trap that is extremely difficult to then get out of.

Credit cards

Credit cards are cards that can be used at any retailer or service provider that accepts payment via that particular credit card. There are many different types of credit cards available on the market today, such as 0% balance transfer cards, 0% purchase cards, cash back cards, rewards based cards, business credit cards, low interest credit cards, and more. You will find a number of credit card providers that offer credit cards, and there are cards available for those with damaged credit as well as for those with a good credit rating.

The interest rates charged on credit cards can be very high, although you can get cards that offer introductory interest rates for a specified period. However, once the special offer term ends your interest rate will revert back to the standard variable rate used by the lender, which is often very high. If you tend to repay your balance in full each month within the interest free period you will not have to worry about interest rates because you will not be charged any interest on your borrowing. The borrowing levels, benefits, and even eligibility requirements can vary from one credit card issuer to another.

Credit cards can be used to make purchases directly onto the card via the Internet, by phone, or in person, and can also be used to conduct cash transactions and withdraw money from the cash point providing you do not exceed your credit limit through conducting any of these transactions. Repayment of your credit card balance can be made in full each month, in which case you can avoid paying any interest, or can be spread over a period of time where you will be required to pay at least a requested minimum amount each month. However, by spreading your balance you could spend years trying to repay your balance, and you will be charged a fortune in interest.

Store cards

Store cards are very similar to credit cards in that you can use your card to make purchases. However, with this type of card you can only make purchases from the retailer or chain of retailers that the card is for, which therefore restricts use of the card. You cannot conduct cash transactions or withdraw cash with a store card. Like credit card the eligibility requirements and credit limits can vary from one retailer to another, and your eligibility will depend on factors such as your credit rating, your income, and your employment status.

The interest rates attached to store cards can be extortionately high – even more so than credit cards, and those that choose to spread their repayments over a longer period can expect to pay a fortune in interest. However, as with credit cards customers can avoid paying interest by settling their balances in full each month before any interest is charged to the account.

Who is at risk of the dangers?

Those at risk of the dangers of credit and store cards are those that are unable to control their spending and do not repay their balances in full. Amongst the dangers are:

• Being in debt for years or even decades through making only minimum repayments
• Being charges massive amounts of interest each month and over the term of the finance
• The risk of impulse buying because there is no need to have available cash, thus further fuelling the risk of high debt levels
• Spiraling levels of debt that can quickly get out of control

Bad debt levels in the UK have rocketed over recent years, and this has resulted in many people ending up with a badly damaged credit rating and struggling with their finances. A large portion of these bad debts relate to credit and store cards, which are thought to be amongst the main contributors to serious debt problems. Those with little or no willpower when it comes to controlling spending, as well as those that cannot afford to make larger repayments on their balances each month, are likely to quickly find credit and store cards becoming a real financial burden.

To make the most of credit and store cards without having to cope with the risks and dangers it is best to use these cards as a back up rather than for frivolous spending. However, if you always repay your balance in full each month you can use your card on a day to day basis, as this will enable you to earn ay rewards and enjoy any benefits associated with the card without having to pay interest or risk spiralling debt levels.