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What type of debt is a store credit card?

A person holding a store card above shopping bags.

Store cards are a specific type of credit card used to finance purchases from a particular retailer. With tempting incentives like discounts and interest-free periods, it can be easy to get swept away when signing up for a store card. But accumulating store card debt comes with the risk of slipping into financial difficulty if not managed carefully.

But what type of debt is a store credit card? Read on to explore how store cards work, what type of debt they create and how to manage this form of credit card borrowing responsibly.

How do store credit cards work?

A store credit card can only be used at the store that issued the card, such as a clothing retailer or homeware shop. When you open a store card account, you’ll be given a line of credit that can only be used to make purchases at that store, either online or in person.

Store cards often offer perks, such as discounts on your first purchase or interest-free financing on certain big-ticket items. The store benefits because it encourages customer loyalty, while you can take advantage of special deals and promotions.

However, there are some risks to be aware of – such as the potential for interest to grow at an alarming rate. Store cards typically have higher interest rates than regular credit cards, which can lead to unmanageable debt.

What does it mean to have store credit card debt?

If you don’t pay off your full store card balance each month, you’ll start accumulating debt. Any remaining balance will be subject to interest, which builds up over time.

Let’s say you open a store card and make a £500 purchase with 12 months interest-free financing. If you do not make repayments during that period, the interest that was deferred will become due on top of the purchase amount.

As a result, carrying long-term balances on store cards can quickly become expensive – you may end up paying far more for your purchases than you originally planned.

Is store card debt a type of credit card debt?

Although store cards are limited to one retailer, they function like other credit cards. When you swipe your store card, you’re accessing a revolving credit line. Any unpaid balance works the same as credit card debt.

That means store card debt is considered a type of unsecured, non-priority debt. Priority debts are those which could have immediate, very severe consequences if unpaid, such as losing your home or being sent to prison.

Credit card debt falls lower on the priority scale, so store card debt is viewed the same way by lenders and debt collectors. If you default on your store card payments, the creditor may ultimately take legal action, such as securing a County Court Judgement with the option of further enforcement action.

Why store card debt is non-priority

Store card debt is considered non-priority for a few key reasons:

  • It is unsecured by collateral - you don't automatically risk losing essential assets (such as your home or vehicle) if you default on payments.
  • You voluntarily took on the debt - it wasn't imposed on you like taxes or child support.
  • Defaulting does not carry criminal penalties or impact innocent parties.

While store cards may offer perks and incentives, they aren’t deemed essential for daily living. Credit card debt is seen as less urgent to repay than priority debts like rent, utilities or council tax.

However, that does not mean store card debt can be ignored entirely without consequence.

Can store credit card debt become "bad debt"?

“Bad debt” generally refers to debt that cannot be paid (for instance, because you can’t afford it). This can happen with store credit card debt if you fail to make repayments.

If you make late or missed payments on your store card, it will be reported to credit bureaus, which may impact your credit rating. Eventually, your account will be considered ‘in default’. At that point, you could be facing collection calls and letters demanding payment. In some cases, you may even be taken to court over the debt, and bailiffs may be sent to your home.

High utilisation and maxed out limits on store cards can also reduce your credit score dramatically. This can make it harder to qualify for loans, mortgages, utilities, and even jobs or rentals.

How to manage store card debt responsibly

Here are some tips to keep your store card debt under control:

Limit store card use - Stick to one or two cards with reasonable limits to manage.

Create a budget - Make sure you can afford payments before taking on more store card debt and prioritise your essential expenses before unnecessary purchases.

Pay more than the minimum - Paying only the minimum due will take years to pay off a balance. Ideally, aim to pay the full balance each month, or as close to it as possible.

Consolidate balances - In some cases, it may be a wise move to transfer high-interest balances to a lower APR credit card, or to start a debt management plan.

Following these smart strategies can keep store debt from spiralling and damaging your credit. If you do carry long-term balances, be sure to make consistent monthly payments, and seek professional debt advice if you’re struggling.

How can debt management plans help?

If you have accumulated several non-priority debts across multiple store cards, credit cards and loans, a debt management plan (DMP) could help you consolidate it and pay it off faster. This is a type of informal agreement between you, your creditors, and a DMP provider.

A DMP could help by:

Combining all debts included in the plan into one affordable monthly payment.

Appointing someone else to negotiate with your creditors.

Potentially negotiating lower interest rates and waived fees.

Providing education and budgeting assistance.

Helping you pay off debts in a structured, manageable way, with an end date in sight.

Your provider will assess your financial situation and create a customised plan that fits in with your monthly budget. However, they may charge a fee for their services. You may also end up paying more in total over time if your repayment term is extended on the plan.

Debt management plans are not right for everyone, so be sure to explore your options and assess your financial situation thoroughly.

Tackle your debt with DFH Financial Solutions

Dealing with overwhelming store credit card debts may seem overwhelming, but you have options. DFH Financial Solutions has been guiding people to financial freedom for over 15 years through tailored debt solutions.

We understand every situation is unique, and we’re here to help you on your journey to becoming debt-free. Apply online today and we will reach out to you to discuss your situation.

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