Breakdown: Store Credit Cards – Part 1

Sometimes it can be tempting to sign up for a store credit card with the allure of saving 10% or 20% on your purchase. Don’t fall for it unless you know what you’re getting yourself into. I’m going to go through the “benefits” of some popular store card tactics to see just how beneficial they are. And if you must save that 10%, I’m going to tell you how you can make sure you really are saving money and not getting ripped off.

“If you sign up for our card you’ll save 20% off your purchase today. Would you like to open an account?”

How many times have you heard this said to you? My guess would be almost every time you’re in a department store. Saving 20% appears good on the outside, but are you really going to save 20%? Let’s break it down.

Looking at a $300 purchase and opening a store card with a typical APR of 24%, here’s how it looks*. (*Numbers are rounded to the nearest dollar for clarity.)

With a $300 purchase the amount charged on a store card would be $255 after subtracting the 20% savings and adding the sales tax.


When paying off the $255 balance with only the minimum payment of $15, it will take 21 months and $60 of interest charged to your account.

Comparing the 20% you saved for opening an account and the amount of interest you were charged to carry a balance, your savings is a net zero!

If you pay only the minimum, you would pay $315 on a $255 balance! So much for saving 20% on your purchase.
Even if you are paying more than the minimum payment, there is still a high APR being charged to your account balance. And remember that special 20% off was only for the first purchase on your card. If you absolutely must open an account and save 20% your best bet is to not ever carry a balance. However, the best way to save is by waiting for a store coupon and pay with your debit card or cash.

How many times are you asked to open a store card when you go out shopping?

Check back next week when I discuss no interest payments, another tricky store card tactic.

Want to figure out the interest you’ll pay on store card balances yourself? Thanks to this handy Excel calculator from Vertex42 it is easy to figure out how much interest you’ll pay on a credit card and how long it will take to pay off. You can download the calculator here.

Chris, Marketing

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Posted in Financial Education, Improve your life, Money Saving Tips
One comment on “Breakdown: Store Credit Cards – Part 1

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