Why Card-Specific Discounts Don't Work

By Amy Fontinelle | July 20, 2011 AAA

It's tempting to sign up for store credit cards that offer perks like a percentage off on every purchase or special sales throughout the year. But is it really in your best interest to open one of these cards? To get an idea, we'll consider the perks, interest rates and fees of four popular store credit cards.
TUTORIAL: Credit Cards

Target: 5% Off On Purchases
Target's store credit card, the REDcard Target Credit Card, rewards customers with 5% off on every purchase at the point of sale at both brick-and-mortar Targets and Target online. Excluded from the 5% back are purchases of prescriptions, clinic services, eye exams, Target gift cards and a few other items that probably won't apply to most consumers.

The REDcard Target Credit Card has a purchase APR of 22.90% variable. The variable APR is calculated as a fixed percentage, which is determined by the credit card company, plus the prime rate, which is usually 3% higher than the Fed funds rate. The card has no annual fee and a late payment fee of up to $35. (For related reading, see Store Credit Card Traps To Avoid.)

Lowe's: 5% Off On Purchases
Lowe's Consumer Credit Card also offers 5% off on in-store and online purchases, with the exception of gift cards and services. This discount cannot be combined with any coupon, the store's military or employee discounts, or the store's low-price guarantee.

The card's interest rate is 24.99%, and there is no annual fee. The late payment fee is either $25 or $35 depending on your late payment history. (For more, see Credit Cards Affect Your Credit Rating.)

Walmart: $20 Account Opening Bonus and Discounted Gas
Walmart's store credit card has a one-time bonus of a $20 statement credit when you use your card to spend $100 in a single transaction on the day you open your account. It also offers a 10 cent per gallon discount at the pump at participating U.S. Walmart gas stations through September 30, 2011. The discount declines to 5 cents per gallon through December 31, 2011, and to 3 cents per gallon thereafter.

Another "perk" of the card is that you can get a cash advance once per day of "$60 quick cash in $20 increments" when you make a purchase at Walmart. It's unclear what the APR or transaction fee is on cash advances because the card's terms and conditions state that the APR for cash advances and the transaction fee for cash advances is "not applicable." You may want to skip this perk since its terms seem unclear, and not understanding them may cost you.

The card has no annual fee and the APR is 22.90% variable. The card's late payment fee is a maximum of $35.

Kohl's: Additional Percentage Discounts on Purchases
Department store Kohl's offers perks with its Kohl's Charge card, including 10% off your first purchase on the card and extra discounts of 15% to 30% off all merchandise 12 times a year. Cardholders who spent at least $600 per year can choose their own day of savings an additional 6 times per year (the year runs from February 1 through January 31).

The interest rate is 21.9% variable (18.65% plus the prime rate). The penalty APR of 24.9% (21.65% plus the prime rate) will kick in if your minimum payment is late. The card has no annual fee and a late payment fee of up to $35. (For more, see APR and APY: Why Your Bank Hopes You Can't Tell The Difference.)

Problems and Alternatives
If you have trouble managing your credit cards, opening a store credit card is likely to do you more harm than good. Think about it this way: if you have two credit cards and you forget to pay both of them on time one month, you'll rack up $70 in late fees. If you have four credit cards and the same thing happens, you'll owe $140 in late fees.

A store credit card's benefits, like discounts, special sales and coupons, might actually make you spend more. Unless you're the type that sticks to a strict budget every month and records your every purchase, a best-case scenario is that you might end up with more stuff for the same expenditure as before, but a more likely scenario is that you'll increase your spending.

Fortunately, you can forgo store credit cards without forgoing the ability to earn cash back on your purchases. Discover offers 5% back in rotating categories throughout the year, allowing consumers to save money on hotels, gas, clothing, department stores, home improvements, restaurants, groceries and more at different times of the year. Combine a Discover card with a second card that awards a basic 1% back on all purchases and you'll be doing pretty well while only having to manage two cards.

The Bottom Line
If you want to use store credit cards to your best advantage, don't change your shopping or spending habits because of the perks. Also, avoid taking on more credit cards than you can handle or buying more than you can really afford. Finally, pay off your balance in full and on time every month to avoid interest and fees. (For related reading, see The Truth About Store Credit Cards.)

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