If you say that you’ve never been tempted — not even once — at the checkout counter by an offer to save up to 20 percent off your purchase simply by applying for a new store credit card, you’re probably lying.
We’ve all been faced with those offers. Most of us have been tempted by them. Many of us have actually agreed to get one. And a large number of us who have gotten one have experienced buyer’s remorse not long after. It’s easy to understand. Once the buzz of that big discount fades, you realize that you are now stuck with a new, high-rate card that you might not be able to use anywhere except at that particular store.
Generally speaking, you’re probably better off avoiding retail credit cards altogether. They can work for you in certain circumstances, but for the most part, your wisest move would be to opt for a different general-purpose credit card and just say no to the retailer.
[See: 9 Ways to Save When Holiday Shopping With Credit Cards.]
Here’s what you need to know about retail credit cards.
They have sky-high interest rates. The average interest rate for a new retail credit card is 23.84 percent, according to a recent survey from CreditCards.com. That’s far higher than the 15.18 percent national average for all new credit cards in the U.S., and it can mean real trouble for anyone who carries a balance on the card.
Here’s the math: If you have a $1,000 balance on a credit card with a 15.18 percent APR and pay $50 each month, it will take you 24 months and $160 in interest to pay off that balance. With that same balance and same monthly payment on a card with a 23.84 percent APR, it would take you 26 months and $287 in interest to wipe your balance clean.
Job No. 1 for any credit card holder is to pay your balance off every single month. If you can’t, then you absolutely must pay more than the minimum. That’s especially true with a retail card. That sky-high interest rate can cause debt to get out of control quickly.
[See: 15 Ways to Avoid Holiday Debt.]
Their rewards are lacking. We are in the golden age of credit card rewards. There are more rewards cards than ever and their offerings, especially sign-up bonuses, are more lucrative than ever.
For example, Chase Freedom is currently offering $150 cash back when you spend $500 in three months. Discover It will automatically match all the cash back you’ve earned at the end of your first year. The Barclaycard Arrival Plus World Elite MasterCard offers 50,000 bonus miles after you spend $3,000 in the first 90 days with the card. That can be redeemed for a $500 travel statement credit. Chase Sapphire Reserve goes a step further, offering 100,000 bonus points when you spend $4,000 in the first three months. That can be worth up to $1,500.
Quite simply, retail store cards usually won’t be able to match those offers. Retail credit card bonuses tend to come in the form of extra discounts on what you buy the day you apply. That 15 percent to 20 percent discount can sound really great, but once you do the math, it often doesn’t hold up. For example, it can’t compare to Chase Freedom’s $150 sign-up bonus, which essentially amounts to a 30 percent discount on the first $500 you spend on the card ($150 is 30 percent of $500). Plus, if you carry a balance, those sky-high APRs can quickly eat into any discount you might have received.
There are some cases when a store card’s rewards can be worthwhile. If you spend a great deal of money at a store on a regular basis, you may want to consider getting that store’s card. Macy’s and Nordstrom, for example, have tiered rewards programs that provide more desirable perks to those who spend the most at their stores. For most folks, however, a general purpose card will still be the best deal.
[See: What to Do If You’ve Fallen (Way) Behind on Your Credit Card Payments.]
They’re offered to you in high-pressure situations. We’ve all been there. You walk up to the counter, tired, arms full of things you want to buy, and the checkout person asks, “Would you like to save 10 percent on this purchase by applying for a Store XYZ credit card today?”
Most of the time, we simply say no and think nothing of it, but from to time, that offer can sound really appealing. Maybe it’s because you’re spending a lot of money that day. Maybe it’s because you’re tired and not thinking clearly. Maybe you just like the idea of a big discount. Ultimately, you say yes and walk out with the discount.
The problem is that you’re also walking out with a card that you probably know almost nothing about. You probably didn’t think to ask about the interest rate. You didn’t think to ask about fees. You didn’t think to ask if you could use the card anywhere or if it could only be used at Store XYZ.
Don’t let this happen to you. If you’re interested in a card, say no, but ask for a brochure. Then, go home and read up on the details of the card. Look at rates, fees, bonuses, discounts and other key things from the comfort of your couch. Finally, if the card still looks good upon closer inspection, apply for the card the next time you visit the store. Chances are that all of the things you liked about the card will still be applicable, but you will be making a far less pressured and more informed decision.
The bottom line. You should never enter into any financial agreement without a strong understanding of what you’re getting into. However, many people each year do exactly that when they spontaneously sign up for a retail credit card just to get a discount. The next time someone offers you one of these cards, be smart. Do your homework, take your time making a decision and don’t be afraid to say no. In most cases, that’s going to be the best move you can make.
More from U.S. News
8 Ways to Maximize Your Credit Card Rewards
12 Simple Ways to Raise Your Credit Score
12 Habits to Help You Take Control of Your Credit
3 Things to Know Before Applying for a Store Credit Card originally appeared on usnews.com
