Right now you're probably dreaming of turkey, stuffing, and pumpkin pie, not to mention that nice long nap you're going to take Thursday afternoon. After you wake up from your food-induced coma, the frenzied holiday shopping season will be in full swing.
When you venture out there, you will probably be beset by store clerks dressed as Santa's helpers promising holiday goodies for shoppers -- like a 10% or 15% discount off your purchase if you sign up for the store credit card. Sounds like a pretty good deal, doesn't it?
Beware of clerks in elf hats. There are some good reasons to turn down a department store credit card.
The top reason may be that department store cards tend to come with higher interest rates than other credit cards.
According to Bankrate.com
A Sears card charges 25.4%. Federated's Macy's offers new cardholders 15% off their purchases for two days when signing up for the card, but it charges 21.6% or 24.9% in interest. Nordstrom offers five different credit and debit cards. Their credit cards charge five different rates, from 8.25% to 23.15%, depending "on our review of your application."
For people who steer clear of the malls and head to the discount retailers, you'll find Wal-Mart offers two credit cards that charge three different interest rates in a range from 12.37% to 22.37%. Target's cards charge four rates that range from 13.24% to 22.24% "based on credit qualification."
Even if you promise yourself you'll pay every cent of that purchase the minute the bill comes in, seriously reconsider signing up for the card if there's even the remotest possibility you can't pay off your balance at once. Even though 10% or 15% off your purchase is a nice discount, the savings could be wiped out quickly by interest payments to a high-interest credit card.
That's probably reason enough to turn down department store credit card offers, but let's consider a few more while we're on this topic.
First, picture yourself standing in line in front of a bunch of harried shoppers who have already lost patience with their children and stand ready to vent their frustration at any opportunity. This is not the ideal circumstance in which to be reading the fine print in the terms and conditions of a credit card application. It's more likely that you'll ignore all the card's details, hand the salesperson your Social Security number, and get out of that store as fast as possible. You'll have no idea what you signed up for.
Second, one purpose of a department store credit card is to entice shoppers to spend more. You'll get exclusive notice of sales and maybe invitations to special shopping days when cardholders get discounts or "extra points." Sounds like a good deal, but it may be enticing you to spend more money than you would have without all the special enticements.
Third, you could tell yourself you'll take the discount, pay the bill, and then cancel the card. I actually had a saleswoman recommend this to me once. I was making a pretty large purchase, so I went for the discount. It makes some sense, but ask yourself whether you'll get around to canceling the account. I did, but not until more than a year later, when I pulled my credit report and noticed the account. I had long since filed the card away and completely forgotten I ever had it.
Fourth, ask yourself whether you really need another credit card. Too many open accounts aren't so good for your credit score. Then there's the complexity. It's hard enough to keep track of your spending on one, maybe two, cards that you use regularly. Throwing in some department store credit cards could cause you to overspend without realizing it. It's also one more bill to track and one more possible fee for late payment.
Now that you've heard all the terrible things about these cards, there are a few cases when they might be a good idea. If you're a truly conscientious credit card holder who never carries a balance, and you tend to do all your shopping in one place, take a look at the department store card. Some come with perks, like money back to spend on store purchases, but make sure to read the fine print. See what it takes to earn those perks, and scrutinize the credit card's rules like you would any new credit account. Do that before you get in line in front of the harried moms and screaming kids.
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Fool contributor Mary Dalrymple has learned to resist the siren call of "15% off" and does not own shares of any stock mentioned in this article. She welcomes your feedback. The Fool's disclosure policy never hikes its rates.