You are at your favorite department store, preparing to buy a
thing or two that you saw on sale. You head on up to the cash
register and pull out your checkbook, or perhaps a major credit
card. The kind sales clerk says to you, "If you'd like to apply
for our credit card, we will give you a ten percent discount."
Ten percent? "Hmmmm", you think. "I've got $150 worth of stuff
here, so that would save me $15!" You go ahead and agree to take
their card, and the sales clerk assures you that it will take
just a minute.
And it does. That's instant credit! You then apply your charge
to the new account and receive your ten percent discount. Was
that a wise thing to do?
Maybe, and maybe not, depending on your own financial situation.
As a rule, credit counselors urge all consumers to carefully
decide whether or not to take on new sources of debt. You don't
want to just take a credit card on a whim, and you certainly
don't want to be lured in by a small discount on a one time
purchase. Most department store credit cards have substantially
higher interest rates than the major credit cards, such as Visa
or Mastercard.
Those interest rates can be in excess of 20%. And what if
there's no grace period on purchases? You may have received a
10% discount, but you may be paying 25% interest on the purchase
from the minute you walk out the door! Do you know? Did you
bother to check before accepting the card? Now that you have the
card, will you use it? If you do, you could end up spending a
lot more in annual interest than if you had just said, "No,
thanks" and used the major credit card instead.
It is very easy to fall into the trap of just accepting credit
cards every time you have one offered to you. But there are
other considerations besides the interest rate and the grace
period. Every time you apply for credit, it puts a small "dent"
in your FICO credit score. The credit bureaus consider it a bad
thing to have consumers applying for credit over and over again,
and they indicate all financial inquiries on the credit report.
Multiple applications in a short period of time can affect the
score significantly. That can be a problem if you are about to
buy a house and you need the best available interest rate. That
department store card you applied for could, under the right
circumstances, affect the interest rate you get on a house loan.
And that's far more significant than the ten percent you saved
on the dress and the shoes.
As a rule, you should avoid these point of sale offers and stick
to cautious, well thought out financial planning. In the end,
you will save a lot of money by not using the high interest card
that you didn't really want in the first place.
About the author:
Talbert Williams offers debt consolidation referrals and
advice. For more information, articles, news, tools and valuable
resources on debt solutions, visit this site:
http://www.1debtfreedom.com
