Question:   What is the deal on department store credit cards – and what separate accounts should I establish?

Answer:      Department store credit cards are everywhere, and more often than not, when you choose to ring up a purchase at any given retailer, you may be asked, “Would you like to save 10% on your purchase today?”

Stores invest heavily to develop marketing campaigns and sales strategies to make their credit card option sound fantastic. They make it sound as though you will save a great deal of money by using their card – but don’t be deceived.

You probably already have a primary checking account and a savings account, both accounts are the kinds of accounts that you should have. Once your savings balance is over $2,000, you may wish to convert it to a Money Market account in order to earn a higher rate of interest.

But if you’re wondering whether or not to take a sales person up on their offer to open a new credit account with the store, I would advise strongly against it.

While you may think there are some department store credit cards that could actually do you some good, in most cases, it’s just not a good idea. Hidden fees, high interest rates and annual membership fees can all be found in the fine print.

Rest assured, what you may save upfront when you open the account is quickly offset by what you risk going forward.

If you really believe an account is worth having, take one of their brochures so you can fully review the terms of the agreement.

Here’s a short list of questions the offer should answer:

• Will the card actually save you money? - Certain cards will offer a percentage back on your total purchases. However, this percentage is often low, and if there are fees associated with the card, they can quickly cancel out any savings.
• What is the interest rate? - Most retail store credit cards have extremely high interest rates which will hit hard if you don’t pay in full every month. Why go through the hassle of dealing with the added risk?
• Are there any fees associated with the card? - Always, always, always read the fine print with any financial agreement, especially credit cards. All the potential fees and extra charges will be listed there, and if you find something you don’t like, discard the idea.
• Does it offer any extra rewards? - Some cards combine a percentage back as well as extra rewards. For example, on purchases made in the store, you get the percentage and every dollar you spend outside the store, you receive points that can be redeemed for gift cards or other rewards. However, if a deal sounds too good to be true, it probably is.

After you’ve carefully evaluated any of these retail based card offers, the chances are good that you will understand why department store credit cards are generally a bad idea.

If you know you will save money, you will be inclined to spend your savings amount at that same store, even in the same sales session. This is exactly what the department store is betting on.

However, this is not their only goal. Department stores also know that a large percentage of consumers will only make minimum payments on their card balance, which allows the store to charge interest on the balance the account. It doesn’t take long for that 10% savings to come right back to the store, especially when they charge over 20% interest on the card..

You are much served by paying off and closing all retail based credit card accounts. Get in the habit of paying cash for your purchases. You will have a better rein on your finances, and you’ll be saving money in the process.

» Should I pay off my highest rate cards first, the largest balance first, or other?
When paying off credit card debt, every math genius will tell you payoff the highest rate cards first. However, other debt experts recommend paying off the lowest balance cards first.

» How does the national economic condition impact my personal finances?
The US debt is growing at a rate never seen before. It’s staggering, and some might argue – criminal. The fact is that the national economy does impact everyone, but not near to the degree that you can impact your own financial situation.

» Should I consider using debt relief companies to start paying off my debt or is there a better way?
Do not fall for the scams offered by debt relief companies. There is nothing they will do that you cannot do yourself.

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