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Percentage off, zero interest and no payments for 12 months are just a small sampling of what retailers will dangle in front of shoppers to get them to open a store credit card this holiday season. But beware: With interest rates on these cards hovering around 28 percent and, in a lot of cases, topping 30 percent, the deal may actually cost you more money than you save.
“We are seeing record-high interest rates for store cards,” says Ted Rossman, a senior industry analyst at Bankrate.com and CreditCards.com. “As we head into the holiday season, a lot of retailers will push these cards aggressively at checkout.”
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Opening store credit cards does give you deals, but they come with costly pitfalls. When the nation collectively owes $16.51 trillion in household debt (up 8.3 percent from a year ago, according to the Federal Reserve Bank of New York’s Center for Microeconomic Data), consumers must be aware of what they’re getting into.
From high APRs to the truth behind deferred interest, we spell it all out for you here.
Soaring interest rates
In an effort to tame inflation, the Federal Reserve has raised interest rates throughout 2022. That’s driving the cost of borrowing up. As it stands, the average store-only credit card annual percentage rate (APR) is 28.22 percent, an all-time high, according to CreditCards.com. The average retail co-branded card’s APR is 25.01 percent. More than 30 store cards have rates of 29.99 percent or higher. These higher APRs result in roughly $1.6 billion in additional charges to retail cardholders who make the minimum payment each month.
If you carry a balance, suddenly, 20 percent off that TV doesn’t seem so appealing. “You should be looking at the interest rate, but most shoppers don't look at that; they look at deals,” says Howard Dvorkin, a CPA and chairman of Debt.com. “You’ve got to be very, very careful."