First Bank of the Lake: Today's Debt Dilemma: Department Store Debt

Consumer debt is on the rise. Mortgages, car loans, and student loans make up a significant portion of the overall debt hanging over American households, but they aren't the only factors. Credit card debt is becoming an increasingly prominent burden for many Americans, and one specific type of credit card debt is on a particularly rapid rise. Our Lake of the Ozarks banking experts are here to examine this particular sector of credit card debt: department store debt.

Department Store Debt

"Would you like to open a [insert store name here] today and save 10% off your purchase?"

We have all heard this offer countless times. After waiting in line at our favorite store, we finally approach the checkout counter to pay for our items. The opportunity to save 10% (or more) off our total purchase often seems too good to pass up - but is it, really?

Kohl's, JC Penny, Macy's, Banana Republic, Target... Almost all of today's big brands offer a corporate credit card. When consumers use their credit card to pay for their items, they receive exclusive discounts. However, it is critical consumers realize that though they are store-specific, they are still credit cards in every traditional sense of the word. A purchase made on a department store credit card today will still need to be paid off tomorrow, and debt, interest, and associated fees can rack up quickly if the cards are not used strategically.

Advantages Of Department Store Credit Cards

Before delving too deeply into the danger of department store credit cards, it is worth acknowledging that these cards do offer some benefits when they are used correctly.

Exclusive Discounts
The most obvious (and possibly the most enticing) advantage department store credit cards offer is that they allow shoppers to save money on their purchases. If you frequent a particular store, it may be advantageous to take advantage of this opportunity to save.

Opportunity To Build Credit
If department store credit cards are used correctly, they offer the same opportunity to build your credit score as any other credit card does. By keeping your outstanding balance at 30% (or less) of your credit limit and paying off your balances completely, you can show the credit bureau that you are a responsible buyer. It is often easier to get approved for a department store credit card than by major credit card companies, so this can be especially valuable for consumers who are looking for ways to rebuild their credit ratings.

Disadvantages Of Department Store Credit Cards

In spite of the benefits they offer, department store credit cards can do more harm than good if they are used incorrectly.

Spending Temptation
It's hard to resist a good deal. The knowledge that you could save off your total purchase (or whatever other special offer the store decides to extend) can make it incredibly challenging not to go shopping, even if you would not have otherwise gone. In these instances, you may be spending less than you would have without the discount - but you're spending more than what you would have spent if you hadn't been coerced into going in the first place.

High Interest Rates
It's true that it is often easier to get approved for a department store credit card, but the flip side is that these credit cards often have the highest interest rates of all credit cards. If you fail to pay off your balance completely or on time, you may rack up expensive payments (and large amounts of debt) very quickly.

Department store debt is one of the fastest-growing types of debt in our country today. Before jumping at the chance to save money on today's purchase, think about the impact the new credit card could have on your finances tomorrow. If you don't trust yourself to handle the card responsibly, paying full price today could be far less costly in the long run.

First Bank Of The Lake Is Here For Your Banking Needs

At First Bank of the Lake, we offer a variety of banking services to meet our clients' unique and varied needs. We are proud to offer personal checking and savings accounts, business checking and savings accounts, individual retirement accounts (IRAs), money market accounts, certificates of deposit, small business loans, and personal loans. For more information about our banking services at the Lake of the Ozarks, visit our website at www.FirstBankLake.com. We look forward to serving you!

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