Consumer items purchased with debt is forbidden for the financially literate. However, for most people there is a gap between wants and needs that is foolishly bridged with store credit to make purchases. Items like furniture, electronics, appliances, and clothing are routinely bought with store credit with payments over time. Some lures for store credit include: zero-percent down, “we’ll pay the taxes,” no interest for the first year, and others that entice buyers into poor financial choices.
Once you have made the purchase and signed the contract, only then do buyers notice several items in the fine print that were not trumpeted by the store salesperson as you were making the purchase.
Here are a few of them:
- Credit Life Insurance – this is an expensive add-on charge that will pay off your loan if you pass away. You may already have an estate plan that takes care of this, but even if you don’t, this is the most expensive life insurance and should be avoided.
- Retroactive Interest – if you are late on a payment, then all of the low or zero percent interest that you were so pleased about launches to a high rate and is due immediately. This is also called deferred interest. Some contracts charge 25%-30% interest on the loan balance if you don’t pay the full balance off by a certain date.
- Due Date Change – you’ve been paying your bill on-time and it becomes a habit. But once principal payments are due, the credit company moves the date up 10 days, you don’t notice, and now your routine payment is late and you are forced into a much higher interest rate plus late fees.
- Mixing Credit Charges – you make a purchase with special low terms but also buy other items with the card periodically. The low-term purchase will get mixed with the high-term items and you end up with no financial benefit at all.
- Amount Due is Misleading – some bills include interest or a late fee, as if it were already late, and put this false number as the “amount due.” If you don’t notice that it is incorrect then you are over-paying your bill each month.
If you pay your credit card or store credit line in full when you receive the bill, then you cannot get hurt. This way, you gain all of the points, credits, discounts, and membership benefits that come along with the card. If you pay credit minimums you open yourself to all kinds of problems like reducing your net worth from excessively-high interest rate charges and potentially a poor credit rating.