Beware of department store credit card offers that give you incentives such as 20 percent off your first purchase. If you don’t pay off your balance quickly, you’ll end up spending far more than you save, according to an article in Bottom Line Personal.
Store credit cards carry an average interest rate of 19.8 percent — much higher than major credit cards, whose rates average 14 percent, the article pointed out. If you make the minimum payment, the interest alone can cost you more than the original price of the item, even with your 20 percent savings. For example, as a new cardholder, you save $500 on a $2,500 couch. By paying the minimum amount each month (around $40), it will take you almost nine years to pay off your debt and cost you $2,260 in interest. Increase the monthly payment to $75, and you’ll pay it off in three years, but still fork over $657 in interest.
If you can’t resist taking advantage of the 20 percent savings, save by paying off the entire amount as soon as you receive your statement, or transfer the balance to your TFCU credit card and save on interest.