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What are the disadvantages of a store card?

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Store cards offer instant credit at popular retailers, providing a convenient way to spread the cost of purchases over time. With incentives like discounts and reward points, it can be tempting to sign up and spend. But while store cards come with perks, they also have downsides – including the possibility of falling into debt.

In this guide, we’ll explore what store cards are, how they work and their key disadvantages to be aware of. We’ll also look at how a Debt Management Plan might help if you’re struggling with store card debt.

How do store cards work?

A store card is a type of credit card that can only be used at a particular retailer or store. Common examples include cards for Argos, Next, IKEA, M&S and more.

Store cards work similarly to traditional credit cards. When you make a purchase with one, you’re essentially taking out a loan from the retailer which you pay back after a deferred period, or in instalments. The main difference is that store cards can generally only be used at that specific shop or brand.

The main reasons people apply for store cards are:

  • Instant credit: Many retailers offer immediate spending limits after a quick in-store application. This allows you to spread payments over time.
  • Discounts: Store cards frequently come with generous discounts, especially on your first purchase. This incentivises people to sign up and spend.
  • Loyalty schemes: Possessing a store card can give you access to exclusive loyalty programmes with added perks and rewards.
  • Interest-free deals: Some store cards offer prolonged interest-free periods on purchases. But this also comes with risks.

While these benefits can be enticing, if you don’t repay your debt in full each month, you’ll be charged interest. This can mean that if you spend beyond your means, it can be easy to fall into store card debt.

What are the downsides of store cards?

Store cards may seem like an easy way to spread the cost of your purchases over time, but they do have some notable downsides to be aware of. Here are some of the disadvantages of store credit cards.

01. High interest rates

Store cards tend to have much higher interest rates than traditional credit cards. This means any outstanding balances can rapidly grow unless they’re paid in full each and every month.

If you only make the minimum payment, interest will start accumulating on what you owe, causing a snowball effect.

02. Limited usage

Because a store card can only be used at one retailer, it lacks the flexibility of a normal credit card. This restricts what you can purchase with it.

Additionally, store cards frequently have lower credit limits than standard credit cards, sometimes under £500. While this can reduce overspending, it also limits their usefulness for financing larger purchases.

03. Impact on credit rating

Having multiple store cards and credit accounts can damage your credit score if not managed properly. Too many credit applications and high utilisation of your credit limits could potentially prevent you from borrowing in future (e.g. when applying for a mortgage).

04. Promotes overspending

The ‘easy credit’ nature of store cards, along with the deals and discounts offered, can encourage you to spend more than you would otherwise. And while credit limits are often low to begin with, they are often raised over time, leading to further temptation to overspend.

Store cards are inherently designed to make you spend: retailers want customers who make impulsive purchases without thinking about repaying. This can make debt harder to avoid.

05. Risk of missed payments

As most store cards can typically only be used with one particular retailer – for instance, M&S cards can only be used at M&S – many people end up taking out different store cards for various shops.

Juggling multiple store cards, each with different due dates and amounts, might make it easier to accidentally miss repayments. This can rapidly damage your credit rating and lead to extra fees.

06. Deferred interest schemes

Some store cards offer 0% interest introductory rates, allowing you to delay payments without incurring interest during a promotional period. This can encourage you to spend more than you can afford. But if the balance isn’t fully repaid by the deadline, you’ll be liable for all the deferred interest.

07. Lengthy terms

The minimum monthly repayments on store cards typically only just exceed the monthly interest. This means it can take many years to clear balances, and you end up paying substantially more interest over time.

While store cards offer short-term incentives, they can easily become problematic if used irresponsibly. Before signing up, think carefully about whether you really need another credit account and will be able to manage repayments.

Could a debt management plan help with store card debt?

For those struggling with store card debts alongside other unsecured borrowing, like credit cards and overdrafts, a Debt Management Plan (DMP) could help. DMPs are informal arrangements between you, your creditors, and a plan provider.

The benefits of a DMP include:

You make one affordable monthly payment to the DMP provider, who distributes payments between your creditors. This consolidation simplifies the repayment process.

Potentially reduced interest rates and waived fees, making debts more manageable.

Less stress and hassle – your DMP provider handles communicating with creditors for you throughout the plan.

The peace of mind of a clear action plan, with an agreed time frame to become debt-free.

DMPs can help people to address their debts by offering a structured, manageable plan. Payments are adjusted to the person’s income and budget, creating an affordable debt solution.

That said, DMPs aren’t suitable for every situation. Some creditors may not be willing to agree to them, and they can sometimes lead to paying more in interest over time. It’s always wise to seek professional debt advice on the best solution for your circumstances.

Take control of your store card debt with DFH Financial Solutions

Store cards may offer quick and easy credit, but their disadvantages shouldn’t be underestimated. If you find yourself juggling debt across multiple cards and lenders, it’s important to face the situation proactively before it becomes unmanageable.

DFH Financial Solutions has extensive experience advising people struggling with store cards, credit cards and other debts. Our team can explain how Debt Management Plans work and whether this could be the right debt solution for you.

Apply online today. Let us help you take the first steps towards regaining control of your finances.

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