Monday, November 14, 2011

Are Department Store Credit Cards a Good Idea?

Visa Debit card from Bank of AmericaImage by MoneyBlogNewz via FlickrWhenever I  go out shopping, when it's time to pay I get the question from the cashier, "Would you like to open up a store credit card?" It's happening at more and more stores. Many stores bottom line depends on customers using store credit. Clerks are under pressure to push as many new cards as possible. There are major incentives to store employees to do this. Department store profits, from their own credit cards, amount to 30 to 40 percent of net income. 

It would be easy to turn down the request for the card but it usually comes with a generous discount for that purchase. It makes you stop and think a moment. Lots of people justify the new card by this discount and vow to pay it off immediately. The trouble is, and the stores know it, the majority do not pay it off. The stores know a percentage of its new card holders will go back to the store and continue to charge more.

Before opening that new credit card consider 5 things:

1. Store credit cards usually carry a high interest rate. You intend to pay it off but you don't. So you are doubly dumb by using the card and by paying higher than normal interest charges. Using one low interest card or your debit card for all credit purchases is a much better way to control your spending. 

2. Store cards encourage you to not shop around. The store card is a magnet to get you back into the same store. You are now limited to where you can shop. You feel obligated to come back to the same store over and over again. With a general purpose card you can shop at stores offering the best prices, you're not trapped at only one store.

3. You don't need a store card. Why start a habit of getting a store card. Are you going to get a card at every store you shop at. Just because you shop at a particular store sometimes, doesn't mean you need a card for there. A single credit card is best for all your shopping needs.

4. Are you really getting a great initial discount. Is ten percent really enough of a discount on a $100 purchase. Could you have gotten a better deal by just shopping around a little more and maybe getting a 20 percent discount on a sale, avoiding the credit card deal altogether. 

5. Opening a credit card should not be an impulse decision. Is opening a new credit card at the spur of the moment a responsible thing to do? Should you give it a little more thought than the 2 seconds it takes to respond to the offer. Are you being pressured at the cash register to take the card? It's no accident that it's done in that fashion. You are under pressure when you want to say no. But just say yes to be nice and not hold up the line of people staring at you.

Is there any reasons to take out a store credit card?

If you are making a large purchase at a home improvement store or you are buying a pricey electronic toy. If you are saving at least $100 it may be a good idea and worth taking on the new card. Only if you do find the cash to pay it off and close the account as soon as possible.

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