Dear Jeff,
I’ve always avoided in-store credit cards because of the problems you hear about with high-interest rates and bad contracts. But we’re making a few big electronic purchases this year and I’m wondering if there’s a way to take advantage of the rewards without causing problems. Is there any situation where applying for a store credit card is a good idea?
Tammy
Calgary, Alberta
Tammy,
The most important thing to note is that the rates and terms applied to in-store credit like a department store or electronics retailer credit card are often not consumer-friendly. While credit card companies compete to offer the best terms and rates, store creditors don’t have the same playing field – i.e. they know they have a captive audience because you’re one of their shoppers already.
As a result, they offer you rewards and incentives that tempt you into signing up, but the interest rate is typically high and the repayment terms can be really strict. This can make debt on a store credit card more difficult to manage with a higher potential for problems if you charge a lot or use the card regularly.
As a rule, you should pay off a store credit card balance in full within the first billing cycle. In other words, you make your purchases on credit to earn the rewards, but you pay off the debt immediately after it’s incurred to avoid high-interest charges and hidden fees that may come up if you allow the account to carry a balance from month to month.
With that in mind, store credit has to be used sparingly and strategically so you’re not taking on so much debt that you can’t pay it off within the month the charge was made. That means that when it comes to big purchases for things like electronics, furniture or a new wardrobe, the best strategy is to save up in advance as if you were going to make the purchase in cash. Then once the debt is incurred, you pay it off immediately.
Using this strategy, a store credit can be used effectively to take advantage of the rewards and incentives the sales associate is promoting without putting your financial outlook at risk. You have to be a little more disciplined than you would even for a traditional credit card, but if you have the means and the restraint to do it the right way, then even these “risky” credit cards can be worth it in the end.
Jeffrey Schwartz
Executive Director
Jeffrey Schwartz is the Executive Director of Consolidated Credit Canada and Former President of the Credit Association of Greater Toronto (CAGT).
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