This morning, I was standing at my favorite hardware store buying paint and happened to overhear their morning staff meeting.
One of the items that they focused on was encouraging their staff to promote the store’s credit cards for their Fourth of July sales that are about to begin. I screamed inside.
Do you know how much an in store credit card costs you?
Here’s the true cost of that credit card.
The greatest thing about the internet is that we live in a moment in time where we have virtually no reason to say “I don’t know.”
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Rather than buying my paint, I found myself standing in the aisle of this store eavesdropping on their morning staff meeting where a manager outlined all the benefits of their in store credit card and why it can benefit every customer during their big weekend sale.
- 0% for 6 months.
- 5% off all purchases.
Thanks to the power of the internet, I began pecking away feverishly on my phone so I could look up the fine print and terms/conditions for their in-store credit card. By law, they have to disclose the terms right on their website.
Here’s what I found in the fine print:
“0% interest for 6 months, with a rate of 26.99% afterwards. Minimum $299 purchase. No interest will be assessed on the purchase if you pay the promotional purchase in full within six months of the purchase date. Depending on purchase amount, promotion length and payment allocation, the required minimum monthly payment may or may not pay off purchase by end of promotional period.”
Let’s break that down…
- 0% Interest for 6 months/180 days (Yay!)
- Rate of 26.99% from day 181 through infinity (Boo!)
- Minimum $299 purchase (Boo!)
- 0% interest if you pay off the purchase in the first 180 days (Yay!)
- If you don’t pay it off, you will be charged 26.99% all the way back to day 1. (Boo!)
- Depending on how much you spend, the minimum payments won’t be enough to pay off the loan before you get hit with 26.99%. (Boo!)
Benefits = 2 | Drawbacks = 4
Quick question… is it really “0% interest” if there’s a very easy loophole to fall into where you will end up NEVER having the 0% interest? How many times have we said “I will pay this off early” and later realized that circumstances have changed and weren’t going to pay it off early?
The website didn’t mention it, but the overwhelming majority of in-store credit cards have a clause attached to the credit card agreement that declare: If your payment is more than X amount of days late, they will charge a late fee AND take away your 0% interest promotion.
Let’s be real. This particular store’s terms are actually quite average for a retail store card, but don’t forget that these store credit cards aren’t truly designed to benefit you. They exist to benefit the store.
Let’s do the math. If you make a $100 purchase with a credit card that has a 26.99% interest rate, that means that almost $30 of your $100 owed is going into the credit card provider’s bank account for no other reason than because they gave you a piece of plastic.
- Charge $100. Assessed $30 in interest.
- Repay $100. Balance left = $30
- Repay $30. Balance left = $9
- Repay $9. Balance left = $.27
Do you see what i’m getting at? That 26.99% applies to every dollar owed, including interest that they charged you from the prior month. That means almost $30 of every $100 of your money is going to be owed to the provider for no reason other than because they gave you a piece of plastic, and not towards paying off your purchase.
Their employees are getting coached every single day on how to sell you credit cards with 26.99% rates.
Don’t forget, credit card loans are a billion dollar industry. No free perk or discount ever offsets the amount of interest you’ll end up paying. They know this, and that’s why they can offer 10% off or $70 credits…because they win either way.
The 0% promotional rates and 5% in store perks exist to encourage you to use their credit card, because statistics show that the overwhelming majority of adults do NOT pay off their in store credit cards before the promotional period ends. The 5% off they gave you for using the card comes with almost a 98% return on investment for the store the minute they charge you interest.
Every morning across the nation people spend millions of dollars and collaborate on how to convince you and I to sign up for these expensive debt traps. They create slogans, visual cues, sponsorship, cultures in our movies/television/music, and free rewards such as giveaways or cash back.
They teach their employees how to sell you the card, often by only highlighting the benefits–and never mentioning any of the drawbacks.