The Trap of Retail Credit Cards

We have all been in our favorite stores, buying one of our favorite items when the salesperson offers us a discount for an application to the retail credit card. The salesperson will tell you about the 10% to 20% discount you will receive with purchase, even more if you use the credit card but they won’t be to apt to tell you about the high interest rates that come along with these retail credit cards.

Retail credit cards come with interest rates upwards of twenty percent, with some of the highest coming in at 30%. What does this mean for the consumer carrying a balance on some of these credit cards? A balance of $1,000.00 can cost $240.00 per month at a 24% interest rate. Is this truly worth the cost of convenience? How does this compare with the ten percent that you are saving off of the purchase of the credit cards?

What are some alternative to using retail credit cards? Traditional credit cards have interest rates as low as ten percent and therefore should be taken advantage of, rather than relying on retail stores to provide credit.

Of course, retail credit cards appear enticing as rewards can be collected quicker and you can receive discounts on your favorite products, but customers need to take into account the interest rate that they are getting trapped into.

Experts have speculated that retail credit cards are in the highest range of credit cards that become delinquent. One missed payment per month can lead to double the minimum payment due the next. This combined with late fees on the accounts can cause payments to become unmanageable before the customer has a chance to catch their breath.

Companies have released numbers that demonstrate these facts extensively. Sixty day delinquencies on the credit card accounts are up twenty four percent, to 4.8%. Although 4.8% may not seem like a significant figure; when it is combined with the other data received from the company it makes quite an impact on the financial state of customers. Debts which are subject to charge-offs are also through to increase in the early months of 2009, up to 12% from the past figure of 9%. Looks like the economy is putting stress on the pocketbook, and credit card payments aren’t making the cut for consumers.

Although retail credit cards may seem like a convenience, they are one of the most expensive financial products available to consumers. Before applying for the card it is crucial that the customer understand the extent of the agreement to which they are signing.


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