Money Gal Coaching: The dangers of store credit cards

Kelly Blodgett launched Money Gal Coaching with a goal of serving people who, like her, were burdened by debt. You can get her tips for paying down debt on a regular basis at Bring Me The News, in addition to the Money Gal Coaching website and Facebook page. Here is her latest story:

I use my credit card as a way to earn easy perks. I am already spending the money, so why not earn cash, miles and rewards points?

I don’t think I need to be the one to say it but here I go: the perks of spending on a credit card is only good if you pay off your balance in full every month without interest or fees. Everything comes with a warning label right?

When working with clients, I only recommend using a credit card if they don’t have a past with credit card debt. It is not worth the perks if you might slip back into debt. Let me say that again: don’t even ponder a credit card if you won’t pay it in full every single month.

Store credit cards are a different beast and don’t provide the same benefits as traditional credit cards. Here a six reasons why you should steer clear of store cards and stick to cash or a traditional credit card:

Encouraging extra spending - stores often reward you with discounts or extra money back as you spend a certain amount of money. These are traps to get you to spend more when you wouldn't have otherwise.

Higher than average interest rates - the average interest rate in 2020 on store credit cards was 23.91% while a traditional card was 17.87%. Maybe it’s because shoppers are high-risk or they need to make up the revenue from smaller lending limits? Either way, you pay more each month and that’s all that matters.

Lowers your credit score - traditional cards can boost your credit score (yes you can still do this without paying interest) while store credit cards lower your credit score. The jury is still out on why exactly but it’s most likely that store cards tend to be open for shorter periods of time and not all stores report this information to the three credit bureaus.

Not available for emergencies - “I only use my credit cards for emergencies," said everyone who has had to defend their credit card spending. But what happens when an actual emergency happens? Like, you need $6,000 right now. Your store card won’t come to the rescue.

Limited options - everything aside, you have to use this card at this specific store. This can lead to purchasing more expensive products or a store no longer in your area if you move.

Overcomplicates things - the more cards you have the more likely you are to forget to pay a bill, miss fraudulent transactions or simply keep track of it all. Don’t overcomplicate things, one credit card and/or one check card is all you need.

Now that you know why you should immediately look into getting rid of those store cards, do you want to know one sort-of exception? My Target RedCard. I save 5% on everything and it comes directly out of my checking account without accruing interest. 

But I caution you, don’t open too many of these cards because after all, we want to keep things simple.

Not sure where to start? Overwhelmed? Let’s chat. It’s free and I can help you get started mastering this thing known as personal finance.

Sponsored: Money Gal Coaching special offer for friends of Bring Me The News.

Disclaimer: Bring Me The News will receive a portion of the proceeds from readers who purchase a service from Money Gal Coaching via our articles.