The Dangers of Store Credit Cards
I use my credit card as a way to earn easy perks. I am already spending the money, why not earn cash back, miles or 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 stay clear of those 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 would 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 a mere 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 a shorter periods of time and not all stores report this information to the three credit bureaus.
Not available for emergencies - we’ve heard it before, “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 $6k 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, not accruing interest. But I caution you, don’t open too many of these cards because after all, we want to keep things simple.
My Debt Free Journey Started With a Pressure Cooker
I am a big believer in having as little debt as possible, but probably not for the reason you are thinking. There are actual physical, emotional and financial reasons for you to get rid of your debt.
When I was on my journey to getting rid of my student loans I was stressed constantly! And the ironic part was that I couldn’t afford the occasional massage, because I had no money, and I couldn’t relax by curling up on the couch because I was working all the time.
Symptoms of financial stress are real, here are a few of the big ones:
The first real reason to get rid of your debt is that you are carrying less risk, hello 2020. Lose your job? Pay cut? I dropped from 40 hours/week to 20 hours/week basically overnight at my dayjob because of the pandemic, and that was way more stressful than my previous student loan stress. But since my loans were paid off, I just had to reevaluate my budget and watch my spending. Even though I didn’t have extra money, I wasn’t wasting what little money I did have on debt payments.
A better credit score is another. Sure, debt is a factor for a good credit score but it’s not that simple. You can have too much debt which would end up costing you thousands of dollars of interest for that next house, car or boat you’ve been eyeing up because you didn’t qualify for a better interest rate. And debt is actually a very small percentage of this score. The only debt I have is a mortgage and I pay my credit card in full every month and my rating is still excellent, it can be done!
Better cognitive function is next up. Yup, this is proven! Studies show that experiencing poverty impaired people’s attention span, working memory, and self-control. Did someone say self control? Have I ever mentioned that I once bought a pressure cooker on an infomercial before Instapot was even a thing? Yeah, I couldn’t afford it and who knows why I thought I needed one. Now I have the pleasure of a kitchen appliance that weighs a ton that I use once a month when I decide to make rice. Fortunately, studies also show that paying off debt reverses these problems!
Less chronic pain is another real benefit to getting rid of your debt. People with high levels of stress caused from debt were more likely to experience migraines, back pain and general muscle tension. They were also more likely to buy over-the-counter painkillers.
Money Crashers goes into thirteen other reasons you will want to get rid of your debt. The general consensus is that debt is bad, we all know that. But maybe you will see some of your symptoms on this list, just like I did. And maybe it will be enough for you to take the steps to pay down any unnecessary debt to improve your finances along with your mental and physical health.
4 Things to Do With Your Money Before Year-End
The end of the year is the perfect time to wrap up bad money habits and start fresh.
Things that we want to be doing on a regular basis include creating a spending plan, tracking our spending and investing towards retirement.
But there are some items that can be done less frequently. Use the end of the year as your reminder to check off some of these less frequent items.
Do you have money sitting in your name waiting for you? You might! You heard me right, old bank accounts, insurance claims or tax refunds get left unclaimed on a regular basis and are easily searchable on a government site for unclaimed money.
Find a cause close to your heart and give them some extra love. Besides the obvious reasons for donating, it also lowers your taxable income and can result in less taxes owed to Uncle Sam. Win-win, just be sure to donate by December 31.
Every year, you get to pull a copy of your credit report from each of the three reporting companies, Equifax, Experience and TransUnion, for free! By pulling your report, you can see any errors or fraud under your name, loan balances and your credit score.
Use it or you’ll use it! If you started saving with a Flexible Spending Account (FSA) through your employer you’ll want to spend those dollars before December 31. Funds within this type of account are only good until the end of the year but shouldn’t be confused with an HSA. Besides the more obvious expenses you can purchase, such as medications or deductibles, here are a few other things to ensure you are using these dollars wisely.
Managing your money doesn’t have to be hard or time consuming. Use these tricks to stay on top of your debt and ensure that you’re not missing out on any money that’s yours!