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Monday, November 17, 2008

Are Retailer's Credit Cards A Good Idea?

By Steven J. Talrechi

The ads are nearly inescapable. They beckon to us from everywhere; telling us that we can buy with no money down ad accruing no interest for as long as 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.

While these credit cards really do let you buy with no money down, offer a 0% interest rate and let you avoid making payments for the first couple of years. This offer is usually limited to a specific purchase, however. Lets' say that you apply for one of these retailers' credit cards at a furniture store. They may offer a discount of 15% off of the purchase price for signing up, offer no payments for two years and a 0% interest rate for this introductory period.

This is a great deal, with one caveat. If you don't completely pay off this retailer's credit card within those two years, you'll be charged interest on the purchase ? not just from the day that this no payments period runs out, but retroactively. The interest will probably also be compounded every thirty days over that two years; this can really add up.

So, you have to be careful here. If you want to use one of these retailers' credit cards, you have to be willing to be very, very conscientious and pay off the balance on that credit card before your introductory "special" period ends. If you don't, you're going to be paying a lot more for that purchase than you intended to -- and here's the thing; a lot of times, retailers' credit card interest rates are HIGHER than those of your traditional Visa or MasterCard. Therefore, you're also going to be hit with a higher interest rate for those purchases.

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.

If the retailer's credit card in question is from a shop where you are a regular and you know that you can afford to pay the entire balance before the end of the introductory period, then these cards can be a good deal for you. If not, then you would be well advised to avoid these retailer's credit cards. Those retroactive interest charges can really hurt you otherwise. Make sure you can afford to quickly repay the balance before you sign up for anything.

Keep in mind that no matter what kind of credit card you use to make a purchase, you should always make sure to pay off your balance as quickly as possible. In fact, it's best not to carry a balance on your credit card for more than 30 days ? this will prevent your having to pay interest. Credit cards can be a big help, but you need to use them very responsibly.

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