It seems like just about every major retailer in the country has their own credit card. Popular stores like Best Buy, Home Depot, and Macy’s, to name a few, offer consumers store branded credit cards that can be used both in store and out of store. Although these credit cards offer consumers store related rewards, they all share a very important characteristic: a high annual percentage rate. How high? Many store credit cards have interest rates that are 40% to over 100% higher than major credit cards.
As startling as that may seem, astronomically high interest rates are the rule among store credit cards. Take the Macy’s credit card, for example. The Macy’s Visa card charges 21.6% or 24.9% interest on purchases. A standard credit card, on the other hand, offers 0% interest rates for 1 year, plus an ongoing low APR of 10.99% for consumers with good credit. That interest rate would offer nearly 50% savings versus the lowest rate offered with the Macy’s credit card. On a balance of only $1000, having a standard credit card with a 0% interest rate would save you over $200 in interest over the course of 1 year.
What holds true with the Macy’s credit card is also true with the Best Buy credit card. Thinking about putting a 50 inch Plasma on a Best Buy Visa? Well, you’ll be paying 22.65% interest on about $3000, or close to $600 a year in interest. Put the same Plasma TV on a standard credit card and pay no interest the first year, then 50% less interest until the TV is paid off.
One reason many people choose store credit cards are the special incentives offered at sign-up. Who wouldn’t want to save 10% on their first purchase, especially the large ones we make during the holidays or at stores like Home Depot? Of course, the stores expect to make that savings back by charging astronomically high interest rates. However, taking advantage of 0% balance transfers can allow you to get the best of both worlds.
For example, the Home Depot credit card occasionally offers 10% off promotions when you sign-up for their card in-store. On a purchase of $2000, that would save you $200. That’s pretty good. Until the interest kicks in. At a rate of up to 22.24%, you would repay that $200 savings in about six months, and end up paying close to $400 in interest over the course of a year, bringing the total cost of the $2000 purchase to $2200. That’s about 10% more than the initial amount. So much for 10% off.
Using the Home Depot credit card in combination with a 0% balance transfer credit card offers a way to take advantage of the 10% discount and 0% financing. By simply transferring the balance to a 0% credit card, you would save the initial $200, plus the $400 in interest you would pay over the course of a year. That’s a savings of about $600 dollars, or about $550 when balance transfers fees of about 3% are calculated in.
Major credit cards offer numerous advantages over store credit cards, but the primary benefit is the substantially lower interest rate they charge.
