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What is store card debt?

A store card in front of a small shopping trolley.

Store cards offer an easy way to spread the cost of purchases from your favourite retailers. But while store cards provide convenience, they can also lead to debt if balances aren’t repaid on time. Like credit card debt, store card debt typically comes with a high interest rate, meaning that arrears can snowball quickly over time.

Read on to understand what store card debt is, how to use store cards responsibly, and how Debt Management Plans can help if you’re struggling to repay multiple creditors.

What are store cards?

Store cards, also known as retail cards, are credit cards that can only be used at a specific retailer or chain of stores. Many major UK retailers offer some form of store card, including Argos, M&S and John Lewis.

The way these cards work is similar to that of standard credit cards. When you make a purchase, you can use the store card to pay, and you’ll later be billed by the company. Then, you can either choose to pay in full or opt to spread the cost over a period, with interest added.

Some key features of store cards include:

  • Specific to one retailer: Store cards can only be used at that brand. This encourages customer loyalty.
  • Lower credit limits: Store cards often have lower credit limits than other credit cards, though these limits usually increase over time.
  • Higher interest: The interest on store cards is often higher than on standard credit cards.
  • Interest free deals: Many store cards offer interest free periods on purchases over a certain amount. However, missing payments can lead to backdated interest.
  • Rewards and discounts: Cardholders may get exclusive perks, offers and discounts, designed to encourage you to sign up and spend.

For retailers, store cards help build brand loyalty, encourage higher spending, and gather customer data. But for consumers, store cards come with a risk of overspending and getting into debt – which can lead to potentially severe consequences.

How do store cards lead to debt?

Taking out a store card doesn’t have to lead to debt. If balances are repaid in full each month, no interest accrues, and store cards can be used responsibly.

However, with interest rates typically over 25%, any unpaid balance quickly snowballs – and the minimum payment on most store cards is usually only slightly more than the interest added. This can make it difficult for cardholders to make any meaningful progress in reducing their debt.

The instant access to credit these cards provide often encourages impulse spending beyond one’s actual financial means. Without properly tracking finances and budgeting for expenses, it’s tempting for consumers to overestimate what they can realistically afford.

Store cards also commonly increase credit limits without regard for the cardholder’s capacity to handle more available credit. All these factors make it dangerously easy for store card users to end up taking on more debt than they can reasonably manage.

What happens if you don’t repay store card debts?

Failing to repay your store card debt can lead to all sorts of financial difficulties. Here’s what can happen if your store card debts spiral out of control:

Interest and charges: Interest will continue compounding on the full balance. You may also face late payment fees and other penalties.

Credit score damage: Missed and late payments will be recorded on your credit file. This can significantly lower your credit score and make it harder to access finance in future.

Debt collections: If you fail to make the minimum repayments and go into default, your account may be passed to debt collectors, which can be stressful to deal with.

Legal action: For very overdue debts, the creditor or debt collectors could take legal action against you. This could result in a County Court Judgement and further enforcement action.

As debts grow, they become more unmanageable. Seeking help at the first signs of financial difficulty is crucial.

How to manage store card debt

If you have found yourself with increasing store card debts, here are some tips that may help you to regain control:

Stop spending: Avoid using the cards until you have a repayment plan in place. Don't be tempted by special offers.

Speak to creditors: Be proactive in speaking to store card providers about your situation. They may be willing to offer you a repayment plan and reduce or freeze your interest.

Create a budget: Stick to a strict budget each month and try to cut down on non-essential spending wherever possible. This should make it easier to make progress on repaying your debts.

Make more than the minimum payment: Pay as much as you can afford above the minimum to clear debts faster and prevent interest from accumulating as quickly.

Avoid further borrowing: Taking on any new debt at this point could make your situation even more difficult to manage.

With early intervention, store card debts can often be tackled through budgeting changes alone. But if your debts are becoming unmanageable, speaking to a professional debt advisor may be a wise move. They will be able to assess your financial situation and recommend a solution that may help, such as a Debt Management Plan (DMP).

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How can debt management plans help with store card debt?

If you are struggling to repay multiple non-priority debts (such as store cards, credit cards and personal loans), a debt management plan (DMP) could offer a potential solution.

DMPs are informal agreements between you, creditors, and a plan provider. The provider negotiates with your creditors in an attempt to reduce or freeze interest rates and fees and create an affordable repayment plan that works for you.

While on a DMP, you make a single consolidated monthly payment to your provider, who splits this between your creditors once any fees have been paid. They also handle all communications with creditors, saving you time and hassle.

Debt management plans can be a useful tool to help individuals regain control of their finances. However, they aren’t right for everyone, and they do come with potential downsides. For example, as the repayment term is typically extended, you may end up paying more over time. It’s important to explore all of your options and seek professional advice before making a decision.

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Get free debt advice today

At DFH Financial Solutions, we understand that debt worries can feel overwhelming. Our advisors are always on hand to explore your situation, explain your options and provide personalised debt advice.

We take pride in matching individuals with debt management plans built around their unique needs and circumstances. To take the first step, apply online or get in touch with our friendly team today. Let DFH help you start moving towards a brighter, debt-free future.