Industry Expert: Say 'No Thanks' to Retail Credit Cards

Thursday, 07 Aug 2014 06:58 PM

By Michelle Smith

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Consumers should exercise extreme caution before signing up for retail credit cards, because many are a bad deal, asserts an industry expert.

If you're checking out at a store, and the cashier says, “You could save 15% today if you sign up for our credit card,” say “No Thanks,” advises CreditCards.com senior industry analyst Matt Schulz.

“Anytime that you're making a decision without taking the time to read through the contracts and terms of service, it's not (a good idea),” Schulz warned in USA Today.

Editor’s Note: Retire 10 Years Earlier With These 4 Stocks

One of the terms that shoppers often forget to consider is the interest rate.

Retail credit cards have a whopping average APR of 23.23%, much higher than the 15.03% national average APR for all credit cards, a freshly released report from CreditCards.com found.

The APR on retail credit cards have been rising in recent years; the average was 21.22% in 2010.

The increase may be driven by the fact that the 2009 Credit Card Act tightened rules on fees that credit card companies can charge consumers. Now, companies are looking to recoup some of those losses and to make back money lost during the recession, Schulz notes in a separate MarketWatch article.

And the industry isn't likely to change course. According to Schulz, rates are likely to continue rising when the Federal Reserve begins to raise interest rates back to historically "normal" levels.

If you're considering a retail credit card, Schulz advises taking a brochure home and reading it first.

“It's always best when you're offered one of these cards to take a step back and think about it,” he said.

What consumers are likely to find is that in most cases, they're being offered a bad deal.

Say a shopper might spend $1,000 on a retail card with the current average interest rate, and makes only minimum payments. It will take more than six years to pay it off, says MarketWatch, and that shopper would end up paying $1,840 for the $1,000 purchase, which is equivalent to an 84% markup.

And that's in addition to the markup the retailer has included on the price tag.

At that rate the retailers one-time offer for 10% or 15% savings is hardly relevant.

The credit market is very competitive right now, according to Schulz, who advises consumers to shop around for the best credit cards. The national average of low-interest-rate cards is 10.37%, CreditCards.com's report found.

So, there's no need to settle for high interest rates. And consumers should also be looking for credit cards that offer cash rewards and other incentives, Schulz added.

Editor’s Note: Retire 10 Years Earlier With These 4 Stocks

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