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Whether you’re looking to update your wardrobe or save on your weekly shop, store cards are a tempting way to pay for your purchases. The lure of buy now, pay later can be tough to resist but, while store cards aren’t inherently bad, they do come with risks.
When you’re offered a store card at the checkout or online, you’ll usually also receive a reward. These are incentives to sign up and could include discounts on your purchase, vouchers, or perks such as exclusively early access to sales. However, these incentives can mask the fact that store cards often have high interest rates. In fact, these can be higher than most credit cards, with an APR of between 20% and 30%.
If you manage your store cards responsibly, take advantage of the discounts available, and pay the balance in full when it’s due, you could save on your shop and avoid ending up in store card debt. But if you fall behind and end up in arrears, the high interest rate can quickly add up.
Store card debt can be expensive, and some companies will add charges for every missed payment. If you can’t catch up and fall into arrears, you could end up defaulting on the loan, face further action, and damage your credit score.
Store cards are a type of finance agreement tied to a certain shop or retail group. They’re designed to let you buy goods in-store or online and pay for them later. You’ll likely be issued with a plastic card, which you can use each time you shop.
The store card company will then send you a bill (usually once a month) to cover all the purchases made. You can then either pay off your store card debt all in one go or spread the payments over time. If you choose to spread the cost, you may have to pay additional interest in return.
When you can shop without having to worry about paying straightaway, it can be easy to get carried away. Store card debt is a risk as these cards can encourage you to spend money you don’t have and can’t afford to repay. They can also make you feel tied to one store, limiting your options and preventing you from shopping around to get the best deal.
Store cards are often offered at the till when shopping, so you could also be at risk of ending up with a credit agreement without having a full understanding of the interest rates, minimum payments, and charges that might apply.
If you can’t afford to pay off the full balance of your store card each month, there’ll typically be a minimum payment amount that you must cover to avoid falling into store card debt. This can be a relatively small amount, but often comes with interest charges that can leave you paying back your debt over a long period of time. In most circumstances, it’s always better to pay more than the minimum payment each month.
Making only the minimum payment on your store cards and falling into arrears can lead to persistent debt. This is the term used to describe the point where you’ll have repaid more in interest and charges than your original balance amount.
The Financial Conduct Authority (FCA) have guidelines in place for borrowers who end up in persistent debt. The store card issuer should contact you at the 18-month mark and again once 27 months have elapsed. If you remain in debt for 36 months, they must offer a payment plan or an alternative payment option such as a loan or credit card.
A store card is a type of credit agreement and so will have an impact on your credit score. Depending on the amount you spend, it could affect your debt-to-income ratio, and a hard credit search will be left on your report each time you apply for a new store card.
If you manage your spending and can pay the full balance each month, your store card could help to improve your credit score as you will demonstrate to lenders that you’re a reliable borrower. But on the other hand, if you fall behind with your payments or open several different store card accounts in a short time, it can negatively impact your score.
Whether you’ve accidentally spent more than you can afford to repay in one go or your circumstances have changed and you’re struggling to find the disposal income to deal with your store card debts, consider seeking expert debt advice. An impartial professional will be able to approach your situation without judgement, listen to your concerns, and help you find the right debt management solution to suit you and your circumstances.
Store card debt can have an impact on your life, or those around you. At My Debt Plan, we’re here to listen and understand, that’s why speaking to an experienced debt solution provider, like ourselves has its benefits. We can talk through your options and support you to find the right debt solution.
For free advice about your finances and the debt solutions available that can help you pay off your store card debts, call us on 0161 826 0585 or request a call back here.
Tell us about your current debts and one of one of our experienced advisors will talk you through all the options available.
Dependant on your circumstances and financial situation, we’ll look at the solutions so you can choose an option that suits you.
Once you have chosen a solution, we will take the necessary steps to arrange this for you.
Lucy Novo Deakin is a licensed insolvency practitioner in the UK by the Insolvency Practitioners Association (IPA).
My Debt Plan Ltd provides insolvency solutions to individuals, specialising in IVA’s. All advice given is provided in reasonable contemplation of an insolvency appointment. Where you are not suitable for an IVA, we may refer you to one of our trusted partners who specialise on alternative solutions, and as such we will receive payment for the introduction if you enter into a debt solution with one of our partner companies.
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To find out more about managing your money and getting free advice, visit Money Helper, an independent service set up to help people manage their money.
*Our advice on your options is always free. We will always notify you if a solution you choose has any cost.
**Of 2,381 IVA cases approved between January-December 2023, the average expected write off assuming successful completion is 74%.
A debt write off amount between 25% and 75% is realistic, however, the debt write off amount will differ for each customer upon their individual financial circumstances and is subject to approval of their creditors. Any remaining qualifying unsecured debt in your IVA will be written off, however some unsecured debts will be excluded, such as court fines, child maintenance and student loans, therefore you will need to continue paying these both during and after the IVA.
