Unless you’re a college kid establishing credit for the first time or someone looking to reestablish credit after a major financial setback such as bankruptcy, there’s really no reason to carry department store credit cards. The scenarios above usually make them a great last resort, but if you already have established credit and are looking to dump debt for good, then check out three reasons to ditch those department store cards once and for all.
1. They are useless when you have a real emergency.
Look in your wallet right now. Ask yourself what good that Victoria’s Secret card would do if you had a flat tire tomorrow. Or, how would that Macy’s card help out in the emergency room? Not looking good, eh? In the face of an actual emergency, department store credit cards are simply worthless. And oftentimes the money you can’t find in your budget to save is going towards the interest on department store stuff you didn’t need and likely couldn’t afford in the first place.
2. The interest rates are too high.
Forget about those fake introductory rates the nice lady at the counter offers you. As genuine as she appears, she’s trying to meet her daily enrollment goal and keep her boss off her back. It’s your job to read the fine print and understand the APR.
The APR is the actual yearly cost of using the credit card and includes the additional fees or costs associated with your transactions. An important point to remember with many department store credit cards is that rewards, perks, and discounts shouldn’t come at a price of high interest rates or overwhelming fees. Interest rates on some department store cards may range from 16 percent to as high as 22 percent, despite the low APR pitch that you were probably given for the first three to six months.
3. You’re probably paying for your “rewardsâ€ points.
Some retailers require that cardholders spend a minimum amount, sometimes as high as $1,000 annually, before you can even begin to accrue any rewards. By that time you can find yourself riddled in debt attempting to earn a $25 gift card for your birthday. . . really?
Additionally, with many department store credit cards, only a percentage of your purchases will go toward earning rewards rather than the total amount spent. And, some of these merchants have deals that only pertain to customers who carry a set minimum balance on their cards.
And if that’s not enough, with some chains, in order to earn even a three percent reward on total purchases would require $100 spent to earn just $3. Should you carry a modest balance to the next month, you may owe anywhere from $16 to $22 on average just because of interest. So, really, you’ve just “rewardedâ€ yourself with additional debt that you could’ve avoided all together by saving and paying cash.
4. They make you more likely to buy impulsively.
The thought that you can swipe now and pay later is probably at the root of most people’s issues with credit card debt of any kind. If you didn’t have a Target card would you really roam around the store browsing and filling up your cart with randomness? Probably not. If you had to pay cash or swipe your debit card, you’d probably wisely avoid certain parts of the store and stick to the list you came in with!
If you are already riddled with debt, stick to having a major credit card that allows you to have access to money during the times you may really need it. If you insist on keeping your fave department store card, just stay alert and manage it wisely. Take advantage of the savings, but without losing out over the long term by paying extra fees. Never buy something merely to earn rewards and never credit more than you can pay off at the end of each month.
Patrice C. Washington is the Wisdom & Wealth Money Maven at www.PatriceWashington.com and author of the series, Real Money Answers. Follow her on Twitter at @SeekWisdomPCW for practical tips on wisdom, wealth & business.