It seems like you can’t go shopping anywhere today without being offered a store credit card. With promises of discounts and cash back rewards it is easy to see why more Americans signing up for store cards today than ever before. And to be honest if used correctly store credit cards can be a great way to save money on purchases and to build up your credit score. Unfortunately for most people that is not what is going on.
Recent studies have shown that people who carry store credit cards have $2,000 more credit card debt on average than those who have standard credit cards alone. With most store credit cards having a higher interest rate than standard credit cards this can end up costing much more than just $2,000 in the long run.
So why are People With Store Credit Cards Spending more?
The reason for this is simple; the cards offer a promise of savings. With most store credit cards offering a discount of at least 10% on all purchases it makes us feel that we are doing the responsible thing by getting that store card. What most people are unaware of is that most store cards start out with an interest rate of 15% or higher. This means if you do not pay your credit card bill off every single month you will end up paying a minimum of 5% more on all your purchases. And with the promise of a discount it encourages us to spend more than we normally would, thus racking up steep bills and more credit debt over all. And heaven forbid you ever go late or miss a payment on your store credit card your interest will jump to as high as 39% in some cases making it even more difficult to get your debt under control.
So How Can I Avoid Falling Into A Debt Trap?
Well the first thing you can do is be selective on what store cards you are getting. Only get a store credit card at a store you know you will be shopping at anyway and regularly. Only spend on what you would if you were getting no discount at all. Pretend as if you had to pay cash for every item. When the bill comes every month make sure to pay off the entire amount. If you can do this you can add savings to your life and increase your credit score at the same while not going into debt. Store credit cards can be very dangerous for finances but if used correctly can be very beneficial.