That deal for a store-branded credit card might seem like a good deal from the initial sales pitch, but be careful once the bills start rolling in. Read the fine print beforehand to save yourself time, aggravation and most importantly: money.
Store-branded credit cards are charging record-high interest rates, according to a new CreditCards.com report. The worst offender is Big Lots, which charges 29.99%. Zales (29.24%) and Staples (28.24%) aren't far behind.
The average store card charges 23.84%, much higher than the national average for all credit cards (15.22%). Retailers get customers to sign up for these cards by offering incentives, but the deals aren't very generous. For example, while half of the credit cards offered by the nation's 100 largest retailers give new cardholders a sign-up bonus, only 13 exceed $25 for a $200 purchase.
A total of 17 of the sign-up bonuses are calculated as a percentage, so they might make sense for large purchases. For example, Best Buy's 10% sign-up bonus would be worth $100 to someone who buys a $1,000 television. But the benefit would be lost – and then some – unless the cardholder pays the entire bill before interest starts to accrue.
"With their outrageously high APRs, most consumers would be wise to steer clear of these cards unless they're 100 percent certain they can pay their balance off every single month," said Matt Schulz, CreditCards.com's senior industry analyst. "And even then, there are plenty of general-purpose credit cards with better sign-up bonuses."
Almost all of these store cards offer rewards for ongoing spending. As with sign-up bonuses, many of the rewards pale in comparison to those offered by general-purpose cards, although they could make sense for frequent shoppers. Case in point: Someone who spends a lot at Target would benefit from its 5% cash-back program since the best general-purpose cash-back cards yield about 2%.
The Military Star card from the Army and Air Force Exchange Service charges the lowest flat rate among retail cards (10.49%). Some Dillard's American Express cardholders qualify for a slightly lower rate (10.24%), but that can climb as high as 25.24% depending on creditworthiness.
Over the past year, the Federal Reserve raised its benchmark interest rate by 0.25% and the average store credit card interest rate rose by 0.41%. The Fed is expected to take a similar action in December; that will likely push store card rates even higher.
And to be sure, Americans continue to love their credit cards.
Household borrowing increased in August at the fastest pace in almost a year, led by a jump in loans for school and automobile purchases.
The $25.9 billion increase, or an annualized 8.5 percent, followed a revised $17.8 billion gain the prior month, Federal Reserve figures showed Friday. The median projection called for a $16.5 billion advance. Non-revolving credit, which includes car and educational loans, also posted the largest advance since September of last year.
Non-revolving credit increased $20.2 billion, while revolving debt rose $5.6 billion during the month, the Fed’s report showed.
But the tide may be turning, Newsmax Finance Insider Michael Carr explains.
"If a recent story at Yahoo Finance is true, the millennial generation is likely to face decades of economic stagnation. Analysts believe millennials don’t like the new chip-based credit cards because the “process can take as long as 4, 5 seconds so it’s really slowing the transaction down.'"
"Economic transactions, unfortunately for the younger generation set to change the world, often take more than 4 or 5 seconds. Closing a mortgage, for example, can take months and requires multiple responses to requests for information. An inability to wait patiently for 5 seconds could explain the low rate of home ownership among millennials," Carr wrote.
"We also learned in that story that another problem for the millennial generation is a reluctance to use credit, favoring debit cards for transactions. Credit, of course, is a necessity for business. Few businesses are able to pay all bills with a debit card since cash flow rarely lines up perfectly," he wrote.
"Hopefully the inability to wait in line while a payment is processed is a temporary problem," he wrote.
"Millennials may claim technology should catch up to their wishes but in reality, the economy can only grow if millennials learn the world is not set up solely for their convenience. Work and patience have historically been required for success and most likely always will be."
(Newsmax wire services and Bloomberg contributed to this report).
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