Banks use credit cards as a guaranteed way to make money. They tweak the numbers and the risks in such a way that they will never lose money statistically, and their profits are big. Responsible consumers can navigate the use of their credit cards and benefit from the ease and convenience, but one wrong step and anyone can fall into a spiraling hole of debt — and that’s when the big banks make all their money.
In this respect, some credit cards are more dangerous for consumers — and more profitable for banks — than others. In particular, store-brand credit cards are some of the worst, offering consumers the worst interest rates imaginable.
According to the website “CreditCards,” after reviewing the percentage interest rates on 64 store-brand credits cards, the average annual percentage rate (APR) was 24.99 percent. That means, if you hold $1,000 in debt, you’re paying a whopping $250 a year to maintain that debt. Also, if you’re just paying the minimum amount on a $1,000 debt, you’ll spend an additional $502 by the time you finally pay off the card. Believe it or not, one branded credit card from Brandsource surpassed 30 percent with its annual percentage rate.
One of the reasons these high interest rate cards are so popular is because the stores offer customers big perks, like 30 percent off for a first purchase with the card or a general 5 percent discount on all purchases. They might also offer deferred interest so you won’t need to pay interest for a year.
What’s important for consumers to remember is that the big perks are great if you can pay your card off before the giant interest rates kick in. If you use one of these cards for a major purchase, be sure to pay it off quickly, as once the interest kicks in, your debt troubles can get out of control fast. If it’s already too late for you, and you’re suffering from credit card debt caused by a branded card, a consumer debt attorney can help.
Source: Barron’s, “Why You Should Think Twice Before Signing Up for a Retailer’s Credit Card,” Evie Liu, Oct. 19, 2017