Shop Yourself Into Debt: Does Your Retail Card Have an Outrageous Rate?

Shop Yourself Into Debt: Does Your Retail Card Have an Outrageous Rate?

Everybody loves a good deal, especially at their favorite store. What if you were guaranteed a discount there—and all you had to do was sign up for a credit card?

Turns out, that "deal" may not actually be such a great offer. According to a survey by, credit cards from some of America's largest retailers have an average APR of 23.23%. That's two times the national average of low-interest-rate credit cards and eight percentage points higher than the 15.03% average for all credit cards. Since 2010, the average APR for retail credit cards has risen by 2.01%.

What's behind the rate hike? It all started with the Credit CARD Act of 2009, which put limits on how often interest rates and fees could change. In response, many card issuers raised APRs. Retailers also increased APRs to make up for lost revenue in the recession. As the economy recovers, however, APRs aren't expected to lower, since the Federal Reserve is expected to raise rates in 2015.

Perhaps to make up for these exorbitant interest rates, retailers have been devising new ways to make their plastic a little shinier. More top retailers are coming up with tiered loyalty programs that reward consumers for using their cards more frequently. And about two-thirds of stores use expanded introductory offerings, like a higher discount on the first purchase, or 0% APR for the first several months. Co-branded cards that can be used at multiple stores are another tactic that promises more flexibility for consumer spending—and more profit for retailers (both in interest rates and transaction fees).

So, is it ever a good idea to sign up for one of these store cards? If you consistently pay off your entire credit card bill on time each month, taking advantage of rewards programs might make sense.

But the 56% of American households that carry a credit card balance should steer clear. Making minimum payments on a $1,000 balance with a high APR can take a whopping 73 months to pay off completely, and cost an additional $840 in interest, according to Using a low-rate credit card with the national average APR, the same balance could be paid off in 56 months and incur just $232 in interest.

No matter how attractive the deal seems or how responsible you are at paying off credit card bills, you can always sleep on an offer. The credit card market is flush with deals, and with a little shopping around you may be able to find a better one with a lower interest rate.


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