If you do any shopping at all, you’ve certainly been offered a store credit card along with a great discount. Some of these deals sound pretty good. You might get a discount and free shipping. Some cards allow you to earn cash back.
But are these deals really worth it? As with many things, the answer is, “It depends.” It’s important to read the fine print and consider all the savings and costs involved. It’s also important to be honest with yourself about your shopping habits.
Keep these tips in mind when reviewing a store credit card offer:
1. How much are you really saving? There are different ways that a card provides benefits.
· A card might offer 5% off all purchases. That’s great, but how much do you actually purchase in a year from that store? Calculate what your savings would probably be considering the items you usually purchase at that store.
· Free shipping for purchases at the online store. Many stores, like Target and Wal-Mart, have online stores and will ship to your home. Some cards offer free shipping. But is all shipping free? Is it just smaller items? Read the fine print.
· Cash back on purchases. Are all purchases included? Based on your usual shopping habits, how much would you really get back?
2. What are the limits? Is there a limit to the cash back reward? Does the discount only apply for the first 6 months you have the card? Many perks have caps on them. Ensure you know the limits.
3. What is the interest rate? If the card has a low interest rate, how long is that interest rate in effect? Are you good about paying your balance in full each month? How much are you likely to pay in interest each year?
· The credit card is banking on the fact that many people will end up paying 20% in interest fees, which more than makes up for a 3% store discount.
4. What is the annual fee? You might think there is no fee, only to find that the fee kicks in after the first year. How does the annual fee alter your expected savings? If you don’t use the card a lot, you might find that the annual fee is greater than the amount you’re saving.
5. What is the credit limit? Most stores have low limits. One reason for a low limit is the hope that you will go over it. What is the penalty for exceeding your credit limit?
Based on this information, you can simply do the math and decide for yourself if the card is really worth it for you. There is no blanket answer. The correct answer depends on the details of the offer, your needs, and your shopping tendencies.
In general, if you will use the card frequently, the annual fee is low, and you pay off your balance in full each month, the card can be a good idea.
It’s important to remember that credit cards are notorious for offering a great deal for new customers, only to reduce the rewards, increase the interest rate, and increase the annual fee. Be sure to read the small print before signing up.
Store credit cards can offer impressive perks and an excellent opportunity to improve your credit. But these cards usually have very high interest rates. Be sure you’re getting a card that will improve your financial situation, rather than cause financial challenges.
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