I’ve always stayed away from store credit cards, but right now I’m trying to save money in any way I can. Will a store credit card really help me save or are those big discounts as bogus as I’ve always thought?
Stacy L. in Louisville, KY
What you need to consider before you take a store credit card offer
Will a Store Credit Card Really Help You Save?
In this video April Lewis-Parks explains when it makes sense to get a store credit card versus when you’re better off turning down the offer. Retailers spend a lot of time, money, and advertising effort trying to convince you that you’ll miss out if you don’t sign up for a store credit card. But are those discounts that they’re offering you really worth it?
April Lewis-Parks, Director of Education for Consolidated Credit: Hi, it’s April with Consolidated Credit and this is Ask the Expert. Our question for today is: Is it worth it to open up a new credit card to get a store discount?
And really, the answer is it depends. If you’re going to do a lot of shopping at that one store and they give you 20 percent off or more, and then they give you coupons and special loyalty discounts on top of that, then go for it. It can be a great deal.
But you have to be aware that you have to pay it off before the bill arrives to get the discount. If you don’t pay it off before the statement date, you’ll usually get hit with 24 to 35 percent interest, and that will wipe out any of the savings that you earned from the discounts.
So, if you can use the card and pay it off every month before the bill hits your inbox, then go ahead. But, if you carry a balance, forget about getting the new card and just pay in cash. It’ll save you more money in the long run.
The right strategy for getting the most out of a store credit card
Always sign up for email discounts first
If you’re shopping regularly at a store, then sign up for their email loyalty program first. You will get alerts about sales, including pop-up sales, and can even score exclusive coupons that can help you save.
If you’re already saving significantly with the email loyalty shopper program, then you may not need the store credit card. You can just keep shopping with your debit card.
Read the store credit card offer carefully
You want to know:
- The APR (annual percentage rate) on the card. If it’s over 30 percent then the card, then you need to be wary. If you ever carry a balance, interest charges will stack up quickly.
- Does the card charge an annual fee? An annual fee means that you’ll pay a set amount each year, whether you use the card or not. This fee can also quickly offset the rewards you earn.
- Are there any hidden terms that make the card less of a value? Some cards have things like deferred interest, while others only offer discounts or rewards on certain purchases.
Fees or limitations on the discounts or rewards that you can earn should be noted carefully. If you have to jump through hoops to earn discounts or interest charges and fees offset those discounts, then the card may not be worth it.
Go online and read reviews
There are websites where you can find reviews from credit card experts, as well as reviews and ratings from consumers. These reviews and ratings can give you insights into whether a store credit card is all it’s cracked up to be.
Just be aware that many of these sites receive compensation for people who click a link to sign up for a specific card. The website should clearly disclose if they receive compensation. Read this disclosure and based on the site’s policy, you may want to take some reviews with a grain of salt.
Always make sure you can manage the debt first
Let’s say you’re looking at a store card from your favorite clothing store where you shop regularly. Getting discounts and rewards from that retailer may make sense, but only if you can pay off the charges you make in full every month.
You never want to carry a balance on a store credit card. Even at the low end of the average store card APR of 24 percent, interest charges stack up quickly. So, you need to pay charges off immediately, preferably before you ever receive your bill
With that in mind, you need to ensure you can manage the debt. One way would be to have a monthly allowance in your budget for clothing. Then you must be careful to only spend up to that amount, using the cash you have allocated in your budget to pay off the charges as they arise.
Another method is to budget by paycheck. You decide every pay period if you need to make any clothing purchases and then build that into the budget for that paycheck. Again, make sure to pay off the charges before you receive your monthly statement.
Are you already carrying credit card balances over each month? Talk to a certified credit counselor to explore options to pay them off.
