Do You Really Need a Retail Credit Card with a Very High Interest Rate?

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Credit cards make it easy to buy the things you want without carrying cash around. As long as you are in the introductory period, there is no problem. But when the high interest rate kicks in and you have a balance, it can be hard to reduce your debt.

New Interest Rates Higher Than Ever

Recently, issuers of retail credit cards have quietly increased their interest rates. Interest rates today on some of these cards are higher than ever—reaching as high as 30.4 percent, says CNBC. One retail credit card charges as much as 30.74 percent. Regular credit cards charge an average of 19.04 percent, which is also higher than before.

The higher interest rates, NerdWallet claims, are because charge-offs went from 3 percent to 4 percent between 2012 and 2019, but spiked to 10 percent after the 2008 recession. Credit card companies have a higher risk than before. They also have no collateral since a credit card is an unsecured loan.

The new rates come just before the holiday season, when people tend to charge many items, and many people may not be aware of the high charges. Before you put any more purchases on your retail credit card, you may want to think twice. It does not matter whether you have a new or old credit card—both have raised their interest rates.

An interest rate of 30 percent or more is higher than they have ever been. Credit card companies know that many people pay late—or not at all—and it seems they think this may be a way to combat that problem.

Deferred Interest

The interest rate may apply to more than just the current balance. Some stores offer their credit cards with an offer of a zero percent introductory rate—but on deferred interest. If you do not pay it off entirely before the introductory period is over, you may have to pay interest on the entire amount.

How Paying Off Credit Card Debt Helps You

Carrying a balance on your credit card means paying more for each item charged—if you are no longer in the introductory period. Interest rates on credit cards are higher than other types of loans, such as car loans, personal loans, or mortgages.

If you take a moment and think about what you could have done with the money you paid in interest during the past year, you could probably kick yourself. What makes it worse is that you may not even have or still be using the items you are still paying for on the credit card.

Comparing Retail Credit Cards With General Credit Cards

Retail credit cards are only good at one store or store chain. They basically are useless anywhere else.

Nearly all general credit cards with a Visa or MasterCard logo have lower interest rates than retail credit cards. Also, they can be used almost anywhere, including retail stores, grocery stores, online, travel tickets, and gas stations. This universality can easily make them your best credit cards. If it is a rewards card, it will enable you to build points faster because all your purchases build points on one card that you can use at many places.

How to Reduce Your Overall Credit Card Debt

If you are tired of paying a lot of interest every year on your high-interest rate credit cards and cannot see how you can pay it off in less than a year or more, you have some options. They include:

• Getting a Balance Transfer Credit Card

Getting a new balance transfer credit card with zero percent interest is the best way to reduce credit card debt. Any other method will charge interest. A balance transfer credit card gives you time to pay down your debt faster—without paying interest. The best offers are for those with the highest credit scores.

If you still have debt when the introductory period ends on your new card—get another one. An important thing to remember while paying off your debt is not to charge anything else.

When selecting a balance transfer credit card, look for one that does not charge a percentage of the amount transferred and has no annual fee. Some of these cards charge a low interest rate on balances transferred, but it will probably be lower than the credit card you have now.

• Asking the Company to Reduce Your Interest Rate

This is another good option. If you ask the company nicely, says Investopedia, they may lower your credit card’s interest rate to help make payments easier. Even a reduction of a few percent—say from 17.99 percent to 14.99 percent—will make a difference.

• Taking Out a Personal Loan

Getting a personal loan from your bank to cover all of your debt will give you some breathing room. It will also give you a lower interest rate and a single payment. Avoid putting any debt on the loan which has an interest rate lower than the new loan. Check around for the best interest rates on the loan.

• Improving Your Credit Score

Credit card companies and retail stores never promise that you will get the advertised rate when you apply. The interest rate you receive will be based on your credit score and ability to pay. If you want a better interest rate on your next credit card or loan, take time to raise your credit score. Experian, one of the big three credit bureaus, says you can improve your credit score by paying your bills on time. They also say that if you are behind in payments, catching up on them and keeping your credit ratio (debt to available credit) at 30 percent or below—but single digit—is best.

If you tend to leave a balance on a credit card, you should avoid getting retail credit cards. Standard credit cards with lower interest rates will benefit you more and help keep more money in your pocket.

The Epoch Times Copyright © 2022 The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.