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Warnings issued about the debt dangers of High Street store cards

High Street store cards have been described as the ‘devil’s debt’ in new research by Money Saving Expert (MSE) which is aiming to bring store cards into the spotlight surrounding the rising unmanageable debt levels in the UK.

The Bank of England and debt charities have raised concerns with regards to the emerging debt bubble for many UK consumers due to an increase in borrowing via credit cards, loans and personal contract payments (PCPs) for car buying but with sky-high interest rates and a lack of information given when store cards are sold they have been highlighted by MSE as a growing problem.

They operate like credit cards that can only be used in one particular store where you buy products and pay them back over time. Store cards of particular concern due to their high interest rates include New Look, Miss Selfridge, Topman, Topshop and Oasis whose interest rates currently range from 19.9% to 29.9%

These rates are higher than most credit cards on the market currently which is why MSE has argued that it is so easy to fall into a large amount of debt without realising it with store cards. A series of introductory offers such as money off purchases and free delivery on a certain number of purchases a year are repeatedly tempting shoppers to sign up for these credit options.

These cards are repeatedly sold by untrained staff who are offered incentives for every store card sign up they get and this is a major cause for concern stressed MSE. As a result, consumers are not receiving all the information they would require, such as credit limits, payment terms, interest rates and more, when they are signing up for these cards.

pds debt high street store cards content

Martyn James from online complaints service Resolver, who have seen the number of complaints regarding store cards triple in the last year, said;  “Store cards are point-of-sale purchases, which makes them susceptible for mis-selling. It also means older and younger people are disproportionately targeted by often under-trained sales people… Warnings about interest, payment dates and charges are not given when sold and people are usually referred to a leaflet.”

Stepchange have also raised concerns about the way these cards are sold to consumers who sign up then and there with no time to make an informed decision with all the information laid out before them like they would do with a traditional credit card.

Although brands such as New Look are regulated by the FCA, many argue that they don’t adhere to the same standards as banks and lenders. Michael Agboh-Davison from Stepchange argues that this means; “Most consumers are not focusing on the APR, and I think the attraction of offers… that is at the forefront of someone’s mind when they are making that decision, not the total cost of credit,”

However, if handled well, these cards can be a great idea and you can reap significant monetary benefits from them but if you have any doubts about your ability to manage money and make repayments quickly then the cards can be worse for you financially.

So what should you keep in mind when thinking about signing up for or using a store card?

  1. Make sure you are aware of the key points – What is the APR? How long do you have to pay off debts? What is your credit limit? Whatever you would like to know from a credit card provider when signing up for a card, you should be made aware of before signing up. The Money Advice Service has a great article all about this subject. [https://www.moneyadviceservice.org.uk/en/articles/store-cards-explained]
  2. Treat it like any other credit card – This means being aware of the interest rate and also paying off the minimum amount on time every month. The more you can pay off and the quicker you can pay it off, the better for you and your finances.
  3. They should not be used as a way of buying goods you can’t afford – Just like credit cards and loans they should not be used as a substitute for paying upfront and in full unless you can afford to repay what you have borrowed. If you know you can’t pay back the money on your card, then get in touch with us or a debt charity to discuss your situation.
  4. Offers and incentives should be secondary, not the main draw – Discounts and special offers are great but are they worth it? They shouldn’t be the main draw when getting a store card and try not to get distracted by sales techniques.
  5. Worried you can’t afford it? Don’t get one – Finally if you are worried about being able to afford the monthly repayments then don’t get one. It may make your situation worse or push your finances into debt struggles.

If you are struggling with debt from a store card or for any other reason, get in touch with us on 0800 901 2488 and our friendly, professional advisers will be able to help to find you the right path for your situation.

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