WITH household budgets suffocating and Christmas approaching, more shoppers look certain to take advantage of store cards to boost their seasonal spending.
But many cards charge high rates of interest and consumers have been warned that a short-term Christmas shopping fix might exacerbate long-term debt problems.
Store cards are effectively credit cards that can be used only for one store or brand
, as opposed to credit cards issued by stores such as Marks & Spencer and Asda that can be used anywhere.
They are used by over 16 million shoppers in Britain, according to the most recent research by comparison site uSwitch.com, which found that users collectively owe £2.17 billion on store cards.
Many shoppers are lured by the discounts on offer for taking one out at the point of sale, usually 10 per cent or so off the item being bought at the time. For many, however, those discounts are wiped out by excessive interest rates of up to 30 per cent APR (annual percentage rate).
Three years ago, a Competition Commission inquiry estimated that store card users were being overcharged to the tune of £100 million. As a result, it forced companies with interest rates of 25 per cent or more to warn customers there were cheaper ways to borrow and to spell out the consequences of only making the minimum payment.
This initially led to a fall in interest rates, but a host of store cards continue to levy charges of more than 25 per cent.
With Christmas around the corner and stores desperate for revenue, some rates have already increased, according to Moneyfacts. "As everyone feels the pinch, many customers may be tempted by the offer of a discount on their first purchases," said Michelle Slade, an analyst at Moneyfacts. "However, this could end up costing customers hundreds in additional interest.
"By also cutting the minimum repayment required, some customers may think it a good opportunity to reduce their monthly outgoings, but in the long run they will end up paying much more in additional interest."
Store cards can be helpful, but only for users who understand the repayment rates, can afford them and who pay off the interest on time, said a spokesperson for Consumer Focus Scotland.
"Read the small print and look carefully at your statement. Even if you managed to pay off last Christmas's debts, you should look again to check that the rates haven't gone up or the introductory offer period hasn't now run out. It may well be that your credit card offers a better deal."
The interest-free repayment period is typically between 35 and 56 days. The implications for not paying off a statement in full can be serious, warned Andrew Hagger, head of communications at Moneynet.
"For example, if you purchased a £500 TV from Argos at 27.9 per cent and repaid just 5 per cent of your balance each month, you'd pay back a total of £848.15 and it would take seven years. If that TV had a price ticket of £848 on it in the first place, I'm sure 99 per cent of people wouldn't buy it."
With financial institutions increasingly jittery about giving credit to anyone perceived as a risk, it's also worth bearing in mind that signing up for a plethora of cards in a short space of time looks bad on your credit file.
If you get into difficulties from using a store card or any other form of debt, contact the Consumer Credit Counselling Service, Citizens Advice or National Debtline for help and advice.
&149 For more information:
www.cccs.co.uk 0800 138 1111;
www.nationaldebtline. co.uk/scotland 0808 808 4000;
www.adviceguide.org.uk or visit your local Citizens Advice bureau
