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The pros of credit card loans and store cards

If you're a self-confessed shopaholic and fail to clear the balance on your credit cards at the end of each month, a million times yes. And even if you’re not, store cards are never a wise option for financially-savvy consumers.

This is simply because the interest rates are usually exorbitant. Some of the APRs of even the more reputable high street stores and chains are huge – with store cards charging as much as 30% interest, making them an easy route to debtors’ hell.

Most stores entice customers to take out these cards by tempting them with dazzling 10% discounts 'if you sign up today!'. Using this tactic, sales assistants typically target the young and financially in the dark who are likely to rack up monster debts and earn these stores hefty profits.

However, unless you swiftly clear your balance for the cost of that discounted jumper, you could be paying more in interest than the money you originally saved. For example, the Warehouse card has a typical APR of 29.9%.

Yet shop staff are rarely given any training in how these cards actually work, and some are offered a commission to get as many new customers to sign up as possible. The Office of Fair Trading reports that 40% of people who sign up in this way had no intention of doing so when they entered the store.

As these cards often charge a far higher rate of loans interest, why bother with them?

The cons of credit card loans and store cards

For those who have a firm grip on their finances, playing store cards at their own game can be satisfying and financially rewarding - as long as you follow the rules carefully.

This means taking advantage of the initial discount, and paying the balance off before the hefty interest rate kicks in and you rack up debt. After all, many stores offer highly desirable and valuable discounts that if managed smartly won't cost you a penny.

It’s a simple process. Just study the fine print to check the interest-free period, which is likely to be from 35 to 55 days. However, don't use store cards for small purchases such as socks, as this is probably not worth the bother. Save them for the high ticket items you've already been shopping around for, and actually need and want. After all, the bigger the purchase the greater the discount, so play clever. Again, as long as you're smart enough to pay off the card in full, you can outwit the high street stores.

Also, and absurd as it will sound to those who believe that store cards are to be avoided at all times, owning and paying off the balance in full can actually improve your credit rating. In fact, if you're seeking to bump up your credit score, choosing a card from your favourite store is one of the swiftest ways to do so, which could be handy as lenders tighten their credit criteria.

Finally, as interest rates are notoriously punitive, managing a store card effectively can actually improve your financial responsibility as you will have to learn how to maximise the discount but avoid the debt.

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