Think Twice: The True Cost of Store Credit Cards (Best Buy, Home Depot, Kohls, Lowes)
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You're at the checkout, and the cashier cheerfully asks, "Would you like to save 15% today by signing up for our store credit card?" Sounds tempting, right? But here's the cold, hard truth: It's a trap — a sugar-coated one.
Store credit cards might appear to be your ticket to instant savings, exclusive deals, and tempting rewards. But let's face it: they are often wolves in sheep's clothing. The allure of that initial discount is a shiny façade hiding a complex web of high-interest rates, potential debt accumulation, and possible credit score damage.
Before you allow the sparkling promise of savings to blind you, take a moment to consider this: Are the savings worth the potentially skyrocketing interest rates and financial risks? I strongly believe the answer is a resounding 'No.' In this blog post, I'll be laying bare the true costs of store credit cards and exploring smarter alternatives to maximize your retail cashback without the damaging side-effects.
If you're ready to explore more beneficial alternatives and seek a credit card that's optimal for everyday spending, feel free to skip ahead to the section titled "Four Better Options to Maximize Retail Cash Back."
Understanding Store Credit Cards
The allure of store credit cards lies in the instant discounts, rewards, or zero-interest financing they offer. The convenience of adding one more card to your wallet, promising savings at your favorite store, can be hard to resist. Common features of these cards include a store-specific rewards program, exclusive discounts, or special financing options.
But while these features may seem appealing, store credit cards often come with strings attached. It's crucial to look past the initial offers and understand the potential costs lurking beneath the surface.
The True Cost of Store Credit Cards
One of the primary costs associated with store credit cards is their high standard Annual Percentage Rates (APRs). Unlike many regular credit cards, store cards generally carry an APR well over 20%, which means if you carry a balance on the card, you could be in for hefty interest charges.
This leads to the second cost — the risk of debt accumulation. Given the high APRs, carrying a balance can lead to a cycle of debt that's hard to break free from, particularly if you're only making minimum payments.
Lastly, store credit cards can potentially impact your credit scores. Applying for a new store card leads to a hard inquiry on your credit report, which can lower your score. Moreover, if the card leads to high utilization or missed payments, this can further damage your credit health.
How to Responsibly Use a Store Credit Card
So, does this mean you should always say no to store credit cards? Not necessarily. If used responsibly, they can provide value, especially if you frequently shop at the issuing store. Here are some ways to use a store credit card responsibly:
Firstly, aim to pay your balance in full every month. This allows you to avoid interest charges, helping you truly benefit from any rewards or discounts the card offers.
Secondly, avoid unnecessary purchases. It's easy to spend more to earn rewards or reach a discount threshold, but this can lead to buying items you don't need or spending beyond your budget.
Finally, always read the terms and conditions carefully. Understanding the card's fee structure, interest rate, and penalties can help you avoid unexpected charges and make an informed decision about whether the card is right for you.
Four Better Options to Maximize Retail Cash Back
If you were considering a store credit card, chances are you're planning on making substantial purchases at your favorite retailer. While it might seem like a logical choice to opt for the store's card, it's important to understand that there are numerous other credit cards out there with far superior value and return structures. Here are four credit cards that are particularly well-suited to yielding maximum cash back, particularly if you're an avid shopper in various retail sectors.
1. Chase Freedom Unlimited®: "Earn Bonus Point" Program
Earn Rate
Earn 5% cash back on travel booked through the Chase Ultimate Rewards portal.
Receive 3% cash back on dining at restaurants, including takeout and eligible delivery services.
Get 3% cash back on purchases from drugstores.
Benefit from a steady 1.5% cash back on all other purchases.
Earn Bonus Points Through the Chase Ultimate Rewards Platform
When you use the Chase Freedom Unlimited® card, one of the key advantages is the ability to earn bonus points through the Chase Ultimate Rewards platform. This platform not only allows you to get a significant 5% cash back on travel purchases, but it also often features various shopping deals and offers. These allow you to earn extra bonus points or get increased cash back rates at specific retailers, further enhancing your potential rewards.
How to Redeem
Redeeming your cash back with Chase Freedom Unlimited® is user-friendly and flexible. You can redeem any amount at any time, and your cash back rewards never expire as long as your account is active. You can choose to use your rewards for statement credits, direct deposits into most U.S. checking and savings accounts, gift cards, travel through the Chase portal, or even shopping with points at Amazon. The wide array of redemption options adds to the versatility and attractiveness of this card.
Learn more about the Chase Freedom Unlimited® here
2. Citi® Double Cash Card: Always Earn 2x On Any Purchase
Earn Rate
Benefit from a flat 2% cash back on all purchases—1% upon purchase and an extra 1% as you pay off those purchases.
This simple, high-yield approach applies to all categories of spending, including electronics, providing immense flexibility and earning potential.
Citi's Unique Approach: The ThankYou Points System
An important feature to note about Citi Double Cash Card is its unique approach to rewards - the ThankYou Points system. The cash back you earn can be converted into Citi ThankYou points, where every dollar of cash back equates to 100 ThankYou points. These points can provide additional value if you transfer them to Citi’s airline partners or use them towards travel through the Citi Travel Center.
How to Redeem
Redeeming cash back with the Citi® Double Cash Card is simple and straightforward. Once you've accumulated at least $25 in cash back rewards, you can choose to redeem them for a check, a statement credit, or a gift card. The rewards never expire, which means you have the freedom to redeem them at your convenience. Moreover, if you choose to convert your cash back into ThankYou points, there is a multitude of redemption options including travel, gift cards, and online shopping.
Learn more about the Citi® Double Cash Card here
3. The Bilt Mastercard®: 2x On Rent Day + Use for Free Travel
Earn Rate (See Wells Fargo terms here)
2x points on travel
3x points on dining
4x points on travel and 6x points on dining on rent day purchases 1x points on other purchases
Use the card 5 times each statement period to earn points
Unleashing Potential with Bilt's Travel Partners
One of the most potent features of The Bilt Mastercard® is its array of prestigious travel partners. The points you earn on rent and other purchases can be transferred to a variety of Bilt's travel partners. These partners include some of the biggest names in the travel industry, such as American Airlines, Delta Airlines, and Hyatt Hotels, among others. This feature dramatically broadens the scope of your rewards redemption, offering you a chance to turn your everyday spending into exotic vacations or valuable airline miles.
How to Redeem
When it comes to rewards redemption, The Bilt Mastercard® offers an appealing level of flexibility. You can use your points for free travel, or transfer them to one of Bilt's many travel loyalty program partners. This broad range of options means you're not just confined to cash back redemption; instead, you can leverage your points for high-value travel experiences, truly unlocking the potential of your everyday spending.
Learn more about The Bilt Mastercard® here
4. Blue Cash Everyday® Card from American Express: 3% Cash back on U.S. Online Retail Purchases on up to $6,000 per year
Earn Rate
3% Cash back at U.S. supermarkets, on up to $6,000 per year, then 1% after that.
3% Cash back on U.S. Online Retail Purchases on up to $6,000 per year, then 1% after that.
3% Cash back at U.S. gas stations on up to $6,000 per year, then 1% after that.
1% Cash back on other purchases.
How to Redeem
The Blue Cash Everyday Card operates as a cash-back credit card, simplifying the reward redemption process. It lets you accumulate rewards as Blue Cash reward dollars, which can be directly redeemed as statement credits without any minimum requirement. American Express might occasionally provide alternative redemption methods, like gift cards or merchandise. However, when exploring these options, make sure the redemption rate is either equal to or exceeds the rate for statement credits. The value of your rewards in the form of statement credits stands at 1 cent per reward dollar.
Learn more about the Blue Cash Everyday® Card from American Express here