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Pros and Cons of Retail Credit Cards for Holiday Shopping

The holiday season is underway and savvy shoppers are on the hunt for all the best deals. One of the ways you can potentially save big is by using a store credit card to purchase some of the items on your list, but there are some pitfalls to consider. While these cards often come with lots of incentives, the cost of using them tends to be higher than a traditional credit card. Shoppers who are planning on using a retail card over the holidays should be well-versed in how they work before hitting the stores.

Pros of Retail Credit Cards

1. They usually come with a big discount

If you’re planning on dropping a lot of cash at a particular store when you’re shopping for gifts, signing up for a retail credit card can help you snag a big markdown on top of the sale prices. Most stores offer you a certain percentage off your first purchase just for opening an account, and it’s typically anywhere from 10 to 40 percent. That’s some pretty decent savings, especially if you’re buying something big like a TV or major appliance for that special someone.

2. The deals don’t stop there

Retailers don’t just want you to use your card once and forget about it, so to keep you coming back to the store they may offer you a steady stream of coupons or exclusive access to deals. With the Target REDCard, for example, you get 5 percent off every purchase in-store and online, plus free shipping for the things you buy on their site. If you want to keep the savings coming throughout the holiday shopping season, that’s a great incentive to sign up for a retail card.

3. You might be able to snag a zero interest deal

When a discount alone isn’t enough to sell shoppers on a particular card, some retailers will step things up by offering zero percent financing on holiday purchases. Promotional periods can last anywhere from six to 24 months, which is a nice benefit if you’ve got an expensive item to pick up and you don’t want to lay out all the cash at once. As long as you’re conscientious about making your monthly payments so you clear the balance before the promotion ends, using a retail card won’t cost you anything.

4. Some cards are good at more than one store

Even though retailers may have different names, some of them belong to the same family of stores. That means that if you have a credit card that’s good at one store, you should be able to use it all of them and still earn rewards on the things you buy. If you’ve got a Gap credit card, for instance, you can use it for holiday shopping at Old Navy, Banana Republic and Piperlime. Rewards are good on purchase made in-store or online, including things you buy at outlet stores.

Cons of Using Store Cards

1. The APR may be higher

One of the biggest drawbacks of retail credit cards is the fact they tend to charge much higher interest rates compared to a traditional card. Instead of charging 13 or 15 percent, retail cards tend to carry APRs in the 20 to 28 percent range. If you’re going to be carrying a balance once the holidays are over, the amount you’re paying in interest and finance charges can easily swallow up any savings you’re getting from that initial discount.

2. You might have to meet a spending requirement

Retailers are counting on shoppers to shell out big bucks over the holidays, and one of the ways they guarantee that you’ll load up your card is by setting a minimum spending requirement on store accounts. Both Best Buy and Amazon, for example, require shoppers to spend at least $149 or more to qualify for the six-month zero-percent financing offer.

If you want to stretch that out to a year, you’ll have to charge at least $429 and $599 to your cards, respectively. Adding on extras just to hit the limit could mean blowing your budget and having a boatload of debt to contend with when the new year rolls around.

3. Grace periods can be tricky

The other drawback to consider with holiday promotional offers is the length of the grace period and the conditions on payments. If you miss a payment or don’t pay the balance off before the grace period ends, all the interest that’s been deferred will be added on to the bill, canceling out anything you might’ve saved when you first opened the account.

4. You might save more with a rewards credit card

A rewards credit card that pays you points, cash back or miles on the things you buy may actually save you more money on gifts compared to a retail card. If you’ve got a card that pays you 5 percent back at select retailers, you can shop around online for promo codes or coupons to bring the price down even more. Rewards cards also tend to have much lower APRs, so if you’re not able to pay off your holiday shopping right away, the interest won’t bloat the balance quite as much.

Photo credit: flickr

Rebecca Lake Rebecca Lake has been writing about the nuts and bolts of personal finance for nearly a decade. She is an expert in investing, retirement and home buying topics. Her work has been featured on The Huffington Post, Business Insider, CBS News, U.S. News & World Report and Investopedia. As a homeschooling mom of two, she's always looking for ways to make the most of every dollar.
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