Dave Ramsey Says There Are 4 Big Reasons to Steer Clear of Store Cards
- Store credit cards are offered by many places that you shop.
- Dave Ramsey says these cards should be avoided.
- There are four primary reasons why Ramsey says you shouldn't open a store card, including accidental overspending and high interest rates.
Don't open a store credit card without reading this.
Chances are good that at some point in your life, you have been offered the chance to open a store credit card. This happens when you visit a store and are checking out at the register and the cashier offers you the chance to save on your purchase if you apply.
Unlike regular credit cards, store cards can only be used at the store that issues them. While it may seem like a good idea to open one in order to score the savings the cashier is offering, finance expert Dave Ramsey actually explains why you should just say no. In fact, there are four big reasons why Ramsey does not believe you should open a store card. Here's what he says.
1. Your card could prompt you to spend more
Ramsey's first big argument against store cards is that signing up for one will prompt you to spend more and purchase things you wouldn't otherwise have been interested in.
"When you're at the checkout line being asked to sign up, you're thinking about saving on something you're about to buy anyway," Ramsey said. "But the very next email in your inbox will be a deal on something you weren't planning to buy."
Ramsey explained that companies can afford to give you the deal upfront to entice you to open a store card because they know you'll spend more in the end as a cardholder. And, he's absolutely correct about this. In fact, in many cases, the "rewards" you get for being a store card member force you to spend more money in order to use them.
This is different from a regular credit card which may offer rewards such as cash back that won't require you to do extra spending just to redeem them.
2. Your interest charges will be high
Ramsey's second warning relates to the astronomical interest rates that come with most store cards. Ramsey explained, correctly, that the interest rate on store cards is typically much higher than the rate on regular cards (which is already pretty high to begin with).
"If you get even one month behind, you'll be paying way too much for those boots you bought at a 'discount' with your card," Ramsey warned.
3. You're better off saving up and paying cash
His third argument against signing up for a store card is that "owning is better than owing." This is one of Ramsey's most common phrases. He firmly believes you're much better off simply paying cash outright for the items you want to buy rather than paying them off slowly over time and committing future income to things you're buying today.
While Ramsey is right that you don't want to pay interest on purchases, he's not necessarily correct that your best option is always to pay cash. You want to save up for items, but using a non-store credit card with generous rewards and paying it off in full could be a better way to buy.
If you have the cash in the bank to cover your purchase, why not charge it on a card that gives you cash back or miles toward a free trip and then just pay your bill before you owe interest?
4. Cardholder benefits aren't worth it
Finally, Ramsey's fourth argument in the case against store cards is that any benefits that come with being a cardholder aren't worth it.
"They're going to offer you special discounts and cardholder deals, but not because they're trying to say thanks for shopping at their store. They're literally banking on all the impulse buying you'll do because they're offering you a deal," he said.
Since cardholder benefits on store cards tend to be much more limited than the perks you can get from a regular card, he's likely right.
You should steer clear of store cards and, if you can be responsible with your credit, find a general purpose card you can use anywhere that offers far more valuable rewards that you'll actually appreciate -- without having to spend extra to get them.
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