Store credit cards can be a tempting option since they frequently offer a huge discount on your first purchase, but there are some mistakes to avoid if you do sign up for one. Many experts warn that store cards are the one card you should almost always avoid, but if you practice responsible financial behavior, you can benefit from a store card.
Below, CNBC Select reviews three common mistakes store credit card holders may make, so you can avoid them and get the most value out of a store card.
1. Make only minimum payments
A common trap many cardholders fall into is paying only the minimum on their credit card. Store cards have some of the highest interest rates of any credit card, and when you only make minimum payments, you can quickly rack up interest charges and debt.
“If you can’t pay the bill in full, the interest rate on the balance might actually negate the savings and leave you owing more than the cost of the purchase in the first place,” Priya Malani, founder and CEO of Stash Wealth, tells CNBC Select.
The Walmart Rewards Card has a high 26.99% variable APR, which can result in hefty interest charges if you carry a balance. If you have a $500 balance on the Walmart Rewards Card and only make a minimum payment of $35 each month, it will take you roughly 18 months to pay off your balance and during that time, you’ll wind up paying about $109 in interest.
We recommend you always pay your bill on time and in full in order to avoid high interest charges.
2. Carry a balance after a special financing offer
You may consider opening a store card to take advantage of special financing offers that may provide no interest for up to two years. These offers can help you pay for large purchases over time with no interest charges, but typically include deferred interest terms.
Deferred interest charges occur when you continue to carry a balance after your special financing period ends. You’ll be hit with all the interest you accrued since the date you made your purchase.
The Amazon Store Card states: “Special financing options are available on all orders of $150 or more. Pay no interest if paid in full within 6, 12, or 24 months as applicable. Interest will be charged to your account from the purchase date if the promotional balance is not paid in full within the promotional period.”
As a result, it’s very important to pay off any charges linked to a special financing offer before the promo period ends in order avoid an unexpected expense.
3. Overspend to earn rewards
Store cards often provide pretty tempting discounts and exclusive cardholder perks that seemingly encourage you to spend at the store. However, you can run into issues if you find yourself charging more than you can afford just to meet minimum spending requirements for various promotions.
The Macy’s Credit Card boasts that new cardholders can save 20% on purchases the day of account opening and the next day, up to a total savings of $100. This is an enticing offer, but it’s also expensive: If you look to maximize the discount, you have to spend $500 in just two days.
While cardholders should watch out for overspending on a store card, “If you do tend to shop regularly at a store, you might benefit from their loyalty program in the long run,” Malani says.
Just make sure you spend within your means and avoid adding items to your cart simply to receive a discount without considering how it might impact your finances in the future.
Information about the Walmart Rewards Card, Macy’s Credit Card and Amazon Store Card has been collected independently by CNBC and has not been reviewed or provided by the issuer of the cards prior to publication.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the CNBC Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.