I used to have a big pile of in-store credit cards for various chain stores. I would go into a store ready to make a big purchase and the person at the counter would say, “You can save 10% by signing up for our store credit card!” and I would think, “Yeah! It’s like a 10% off coupon – and I don’t even have to pay right now!”
Sure, this offer sounds great on paper, but the truth is that these offers are set up to devour you if you don’t diligently pay your entire bill. For me, the end result of this was a huge amount of high-interest credit card debt that took me years to pay off.
Let’s walk through the pitfalls of such offers, step by step, so you can see how they work.
Chains that use these cards are ones that often see a good deal of credit card use. Shoppers are accustomed to pulling out their credit card anyway to make relatively expensive purchases. Thus, shoppers in these stores already match the target audience for these cards: individuals who frequent this specific store and regularly use credit to pay for their purchases.
Often, the offer is only given when the 10% savings will be “significant.” This is key: if you’re about to make a $200 purchase, the cashier can quickly indicate to you that using the card will save you $20, which is quite appealing to the ears. It makes an expensive purchase seem less expensive, and also creates the appearance of actually putting significant cash in your pocket.
The credit card usually has no grace period (or only a short introductory period). As a result, you begin getting charged interest on your purchase the second the new card is activated and swiped. Often, your first bill will already have a significant finance charge on it.
The credit card often has a high interest rate – 22.99% is a common APR on such cards. This interest rate basically means that in about five months, your 10% discount has been eaten up by the finance charges – and a period longer than that means that they’re money ahead.
The credit card often has a very tiny minimum payment. Such offers often use an incredibly tiny minimum payment, usually just 3% of the total balance. This means that your first bill on a $180 purchase would have a minimum payment of just $5.50 or so. The problem is that if you just do those payments, you’ll be paying the minimum payment for 50 years. Even worse, you’ll pay $318 in interest alone, just to save $20.
In general, in-store credit cards generally are not worth the risk – you’re better off using your own rewards card instead. If you simply must do it, pay off the entire balance as soon as you can. If you don’t, any benefit from getting the card will soon be washed away.