Storing up troubles
THE DAILY MAIL - 12TH DECEMBER 2007
In the shopping frenzy leading up to Christmas, store cards can look tempting with their offers of discounts and instant credit.
It is usual for stores to offer 10 per cent to 20 per cent off the price of your purchases if you take out their card on the spot.
But with some of the most popular store cards charging an eye watering 30 per cent interest, the benefit of the discount will be quickly wiped out if you don’t pay off the balance.
Cards available from Burton, Dorothy Perkins, Comet, H Samuel, ToysRUs and Woolworths are among those with interest rates of 29.9 per cent. This is almost double the average credit card rate of 15.9 per cent.
The best way to play these cards is to take the discount then clear the bill in full by the due date, giving yourself up to 56 days interest-free credit.
You will still be invited to exclusive preview evenings and cardholder offers which are among the perks used to persuade shoppers to take out these cards.
Samantha Owens, of financial research firm Moneyfacts, says: ‘Most people don’t realise the interest rate they are charging.
‘They just tick the box to pay off the minimum by direct debit, but that way they will pay huge amounts in interest.’
And in the flurry of filling out the form at the till, you may well opt for an expensive and often worthless extra –payment protection insurance– without even realising it.
This is sold as ‘peace of mind’ insurance designed to cover your repayments in times of crisis if you are ill or unemployed. But at up to “1.25 a month to insure a debt of £100, it comes at a high price.
The cost of insurance can swell your repayments by 50 per cent. Someone who owes £1,000 on a store card charging 29.9 per cent would pay £25 a month in interest and £12.50 for payment protection insurance.
Policies usually cover only your minimum payments for 12 months. In addition, many of those with payment protection insurance may not be able to make a claim. The self-employed, students and those who have retired can’t claim on the unemployment element of the insurance, which is a substantial part of the cost.
And those who have had medical problems in the past are likely to have their claim rejected if they can’t work through illness.
Cheaper stand-alone cover is available through independent brokers such as British Insurance.
