Balancing a Great Deal vs. Interest Charges

The dilemma: you’re in a store with an armful of essentials. You’re handing your treasures to the cashier, ready to check out, when they ask, “Would you like to open a credit card account and save 10% today?”

It happens in many a retail store across the country. Cashiers have been trained by corporate to wag the brochures in front of you, tempting you with even deeper discounts. This is your favorite store, right? You want a better deal, right? In the moment, it sounds fantastic—an extra 10% and you can simply put the purchase on that shiny new retail credit card and pay it off when you get home.

Except that a few weeks roll by and you’re back at the same store, tempted by yet another discount, so you whip out that plastic again. Pretty soon, bills come around and there doesn’t seem to be enough money in your checking account to cover the new credit card payment. Maybe it’s time to revisit this important question: How does credit card interest work again?

Some retailers aren’t just in the business of retailing, they’re also in the business of finance. They are hoping that not only will you snatch up the discounts or special offers that come with the card, but that they can also make a few extra bucks off of your credit card interest.

However, retail credit cards aren’t something to necessarily and always steer clear of, if you know what you’re doing: maybe you actually love the brand associated with the card, you’re financially responsible, you’ve been a long-time customer, and you know the long-term advantages of signing up.

Here, we’ll try to help shed some light on the pros and cons of retail credit cards, especially if there’s a really sweet deal tied to one.

Pros of Retail Cards

The pros of retail credit cards may include being able to take advantage of special deals or discounts that you wouldn’t be able to get using cash or a debit card. For example, if you love a certain store, then the perks of that store’s card, like free shipping from the store, discounts only card holders enjoy throughout the store, or points earned for every purchase made at the store, might be worth it to you. And some of the top-rated store credit cards come with no annual fee, which could also be a selling point.

However, if you do opt for a store card, it’s still important to monitor your spending and not spend beyond your means, as opposed to making it rain with all your new credit card points.

Not sure whether or not a retail credit card is right for you? You may wish to determine how often you have shopped at that particular store within the past year and apply the discount.

Is this discount enough to cover the responsibility of having a credit card? For example, let’s say you spent $10,000 in one year at a big-box retailer and the store credit card is offering a 10% discount. That’s a potential savings of $1,000 and would make opening a credit card a pretty solid choice.

Cons of Retail Cards

While interest charges aren’t unique to just retail cards, they are certainly a drawback to credit cards in general.

How does credit card interest work? Credit card interest kicks in when the consumer does not pay their statement balance in full by the given due date.

When you make a purchase with a credit card, you are actually borrowing money from the credit card company to pay for said item or service. It’s a great setup, as long as you pay back what you borrowed in full and on time. If you don’t pay your credit card bill on time, you will be charged interest on your balance until you pay it back in full.

Interest rates may vary from person to person depending on the credit card and/or credit history. And currently, the average interest rates on credit cards are around 17%.

To avoid owing interest, it’s important to pay your credit card balance off every month. In many cases, you can set up automatic payments, but of course, if you’re going to set up automatic payments, it’s ideal to set them up for the full statement balance rather than the minimum payment. If you don’t pay your balance in full, because of credit card’s often-steep interest rates, you could end up racking up a hefty balance.

That’s why it’s better to spend within your means on a credit card. Unfortunately, paying off that debt could take much longer than it did to swipe the card at the store.

Getting out of Credit Card Debt

If you have racked up credit card debt in the past, there are ways to get yourself out of the credit card debt spiral. Of course, there isn’t just one solution that will work for everyone. Maybe you have $3,000 of credit card debt and are able to borrow $3,000 interest-free from a family member in order to get rid of that debt. Or perhaps you’re able to use $3,000 from your emergency fund to wash that balance away.

If neither of those are an option, another idea could be to consider a personal loan from SoFi. Using a personal loan to consolidate your credit card debt can allow you to pay off that high-interest debt at a more manageable interest rate. (Because after all, who wants to pay off debt at 17%?)

A personal loan is also an installment loan, which means you’ll pay it off in set (you guessed it) installments until your balance is gone. On the other hand, your credit card is a revolving debt, which means you can add to it while paying it off. So even if you pay off large sums of your credit card debt, you can also still continue spending on that card, thus increasing your debt.

With SoFi, you can potentially qualify for a low-rate personal loan with no prepayment penalties or origination fees.

It could reduce your interest rate and help you get out of credit card debt sooner than you ever thought possible.

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