Why Keeping Credit Cards Is Almost Always a Terrible Idea
We’ve all been told to keep our credit cards at the checkout, and subscribing to it is almost always a bad idea. In a recent study of retail credit cards and their predatory tactics, MagnifyMoney explains why.
The site conducted a survey of December deals promoted by credit cards in stores of the top 100 US retailers. Quite often, they found, offers were overly convoluted and tricky — classic debt traps . This is more or less common knowledge, but research does break it down to illustrate why these cards are bad for consumers.
Deferred interest is probably the biggest pitfall. With the regular “0% starting annual interest rate” credit cards you’ve probably seen before, you pay this nice promo rate within a set time frame. After that, the regular interest rate will be charged on your balance. Deferred interest cards combine with the appeal of these deals, but they are not the same thing. MagnifyMoney explains:
Deferred interest offers are very different and very common for private label cards. A typical offer for a deferred interest rate would be “0% per annum for x months”. During the grace period specified in the offer, the consumer is not required to pay interest. If he or she pays out the balance in full during the promotion period, no interest will be charged. However, if the balance is not paid in full during the promotion period, interest will be charged retroactively at the standard purchase rate. It will look like the buyer did not have a promotional offer at all. To make matters worse, the interest rates on the store’s credit cards are exceptionally high.
In its study, MagnifyMoney found that 87 percent of store cards with promotional offers use deferred percentage, and the average rate on those cards is a whopping 24.8 percent.
This is not to say that you cannot avoid the trap of paying your balance in full, but it is dangerous for most consumers who find themselves in a cycle of debt. They offer a lot more information from the link below, so you’ll want to check it out.
Holiday 2015 Study on store credit card and deferred interest | MagnifyMoney