Store Cards

What is a store card?

A store card is a type of credit card which can only be used in certain shops. Like credit cards, you use these to buy goods and then make repayments at a later date. The problem is though, many store cards come with high interest rates.

Before you know it, a small purchase has turned into something with huge consequences. With growing financial pressures and growing interest, paying off a store card can sometimes feel like an impossible task.

How many store cards is too many?

Like many questions relating to money, this answer depends on your situation. If you’re struggling to meet the repayments though and you have large amounts of store card debt, you probably have too many.

Another way to determine if you have too many store cards is to consider your credit utilization ratio. This is an indicator of how much credit you have available and how much of your credit you are using. Usually it is recommended to keep this at around 30%.

For example:

• Pete has two store cards and one credit cards that each have £2,000 worth of credit.
• This means Pete has the available credit of £6,000.
• Pete spent £3,000 on these cards, which means he has used 50% of his credit.
• This means his credit utilization is more than the recommended amount.

Store card advantages and disadvantages

Store cards do have several advantages. For example:

• If you regularly use the services of a particular store, you might be able to secure a good deal with them;
• Many store cards have introductory offers or may include freebies.

However, they also have several negatives. For example:

• Store cards often have higher interest rates;
• Store cards can only be used at specific locations;
• Store cards can sometimes be sold in-store by staff members. Therefore, these people may not take your financial situation into account.

Is debt consolidation worth it for store cards?

To determine whether debt consolidation is worth it for store cards, you should make sure you’re total payment is less than you what it would be if you didn’t have a consolidation loan.

For example, if you held three store cards, owing £500, £200, and £300 on each at Representative 29.9% APR, it would mean over two years you would repay a total of almost £1,300 to clear the original debt assuming you didn't spend any more.

However, if you took out a £1,000 debt consolidation loan – at Representative 12.9% APR – you would repay around £1,130 over the same period. In this example you will be saving £170 in interest over a two year period.

This also doesn’t take into consideration other debts which you might have. By combining all of these into one loan, you might find debt consolidation is certainly worth it.

If you have any questions about your individual circumstances, please speak to one of our team members.