Editors' pick: Originally published Dec. 1.
Gravitating toward retail credit card offers during the holiday season is a popular undertaking, but while these cards offer alluring discounts, the hidden costs can wind up regrettable.
On Black Friday alone, consumers open an average of 500,000 store credit cards, said Torsten Slok, chief international economist of Deutsche Bank Securities, in a research note. Since the recession, the average balance on retail credit cards has continued to increase and is currently at $332.
While stores increase their offers during the holidays and extend lucrative discounts on purchases, the high interest rates can easily wipe out any savings. The average retail card's APR is 23.84%, which is more than 8 percentage points higher than the average for other types of credit cards. Some retailers offer cards which go as high as nearly 30%, "which is often the penalty rate on a general purpose credit card, the rate given to people who make a big mistake such as paying 60 days late," said Matt Schulz, senior industry analyst for CreditCards.com, an Austin, Texas-based credit card comparison company.
Shoppers who are intrigued by store cards should not fall prey to the pressure and make any rash decisions by signing up for a new card during the checkout process. Instead, researching the details of the card first will help consumers make more informed choices, he said.
"Retail cards can be really tempting, especially when they come with a big discount on your purchase," Schulz said. "Read up on the details and decide if the card still sounds like a good deal. If it does, apply the next time you go to the store. Chances are all the same perks will still apply, but you'll be able to make a much less pressure-filled decision."