Everywhere you go, we see ads screaming at us to take on this credit card or that credit card. The ads scream at us, “0% down, no interest for three years!”
However, are these retailers’ credit cards really the deal they seem to be? Let’s take a look at what happens when you take on a credit card from a retailer.
First of all, yes, it’s really true that a retailer’s credit card will usually give you 0% interest, no payments for two years as an example, usually for a specific type of purchase. For example, let’s say you sign on for a retailer’s credit card at a furniture store. Now, because you signed on for this card, you might get 10% off your purchase price, plus you get 0% down and 0% interest with no payments for the next two years.
That’s great, if you can swing it. However, there’s a caveat. If you don’t pay off that credit card balance IN FULL within the time the store gives you to pay off the balance (let’s say, two years), you might think that you’re going to be charged interest beginning the first day after the end of that introductory period, but that’s usually not true. In fact, you’re also likely going to be charged interest retroactively to the day of the purchase, and it may also very well be compounded during those months, usually every 30 days or every billing cycle.
These cards should be approached with caution. If you cannot pay off the balance in full before the end of the introductory period, then you are probably better off without this card. Those retroactive interest charges could add up to quite a lot of money. Remember that these retailer’s credit cards often have much higher interest rates than a regular MasterCard of Visa would.
If you’re not at all sure you’re going to be able to pay for the purchase in full before the introductory period ends, don’t do it. Now, of course, the best scenario is not to get into debt with these types of purchases at all and instead pay cash for things you really want or need. However, if you must use credit to make this type of purchase, a better bet may be to use a lower interest rate but “generic” credit card such as Visa or MasterCard, and pay down your purchases as soon as possible. Even though you won’t save a percentage of the sale price as the retailer might promise you to get you to sign up for the card (such as 10% off if you purchase with the retailer’s card), you’ll save money in the long run because you’ll be paying lower interest rates.
In conclusion, then, a retailer’s credit card can be a good thing to have if it’s a store you shop at a lot and you regularly pay down your balance completely. However, if you don’t shop at the store a lot and are only signing on for a retailer’s credit card as part of a “special″ deal in hopes you’ll save money in the long run, be careful. Retroactive interest charges will come back to bite you if you don’t pay down the balance by the end of the promotional period, and you’ll be left paying a lot more than you would have if you had paid cash or even used a different credit card.
Finally, remember that no matter which credit card you use, you’re going to end up paying a lot in interest charges if you don’t use responsibly. So shop carefully, and pay down your credit card balances as soon as you can; in fact, it’s a good rule of thumb to have that you never carry balances on credit cards for more than 30 days. Credit used responsibly can be a good thing, but you have to be careful just two you get it from.
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