So you’re queuing at the till in your favourite store with your arms piled high with things you think you need, and when you get to the counter the shop assistant has a wonderful surprise for you. If you sign up for a store card, you not only get a 10% discount, but you can also charge all your purchases to your account and not pay anything upfront if you don’t want to.
It’s a tempting offer and, as store staff are encouraged to push credit cards onto customers, it’s no surprise that many people agree to sign up in the hope they are going to save money. Except the catch is that ultimately you don’t save money. In fact, you often end up spending far more than the product is actually worth and risk getting into unmanageable debt.
There are a number of risks that come with signing up for a store credit card. Here are the top 3 things to be aware of before you sign on the dotted line:
1. The high-interest rates mean you ultimately pay more
When you pay for something on a store card, you are paying it off in monthly instalments. While this might seem sensible and easier on the bank balance, the truth is that because of the high interest rates that are attached to these accounts, you end up paying far more, as the interest builds up each month.
2. You spend more than you can afford to get the rewards
Having a store card can bring out the shopaholic in even the most frugal budgeter. Specials and rewards can tempt you to spend more than you can afford in order to take advantage of whatever they are offering. It might seem like a money-saving option, but how much are you saving if you are actually spending more than you can afford in the first place?
3. Note the interest-free time frame
Many store-branded credit cards offer an interest-free period of time, but chances are it’s actually something called a ‘deferred interest agreement’. For example, you may buy a new TV for R25 000 and you pay off R20 000 within the ‘no interest’ time frame. You might think that you are only going to have to pay interest on the remaining R5 000, but instead, you will be charged interest for the full R25 000. The interest has just been rolled over or ‘deferred’. Read the fine print so you know exactly what you are going to be paying.
If you are careful with your store cards, then they can work to your advantage in some instances. Here are a few tips to avoid getting into debt:
1. Stick to a budget
Set a budget before you go out with your store card in your wallet. If you know that you won’t be able to stick to it, then leave it at home, and perhaps think twice before signing up.
2. Pay your balance in full
Interest rates are generally higher with store cards than with normal credit cards, so it’s wise to pay off the amount in full each month rather than paying the minimum amount.
3. Always read the fine print
Store staff don’t expect you to check the terms and conditions, but that’s where the truth lies. Read them closely so you are aware of exactly what you are getting into.
The information contained in this article is for information purposes only and does not constitute professional advice.