Beware Of These Christmas Credit Traps

As the pressures of Christmas shopping start to pile up, don't get sucked in by these offers.

With only 57 days left until Christmas, many people are starting to panic about how they will be able to afford buying presents this year. Those people with poor credit records are likely to be finding it particularly tough and that means certain store cards can look increasingly tempting.

One of the latest offers is from Provident Personal Credit which has teamed up with Argos to offer the Easy Shop Card, `a plastic card that lets you shop at Argos, without the worry of overspending'.

Although it is not strictly classed as a 'store card' (although it seems like one to me), the card allows you to borrow between £100 and £500 to spend in any Argos store nationwide. Provident says it has no `complicated forms' and has `affordable, fixed, regular payments - collected by a local agent.'  The card is also described as a `convenient way to spread the cost of your shopping and stay in control.'

There's just one massive catch - it has an APR of a whopping 222.7% spread over six months.

High APRs for store cards are nothing new and we at the Fool have always been wary of such cards. Even so, most store cards usually have an APR of around 25%, so an APR of 222.7% is absolutely horrifying!

This means that if you bought an Argos item costing £100 with your Easy Shop Card and paid monthly repayments of £5 over 27 weeks, you would end up paying £135 in total. To take it further, if you had borrowed £500 and made monthly repayments of £25 over 27 weeks, you would end up paying £675 in total. That's a lot of money.

Are any other stores affected?

The Easy Shop Card can only be redeemed at Argos, but Provident Personal Credit also sells `sub-prime' gift vouchers for use in more than 90 other major high street stores such as Woolworths, HMV, Poundstretcher, and JJB Sports. Arcadia group, which owns Topshop and Burton, has reportedly pulled out of the scheme.

Again, these vouchers have an APR of 222.7% spread over six months.

This is very worrying considering these vouchers/cards are likely to be a big temptation to many vulnerable people who are struggling to get credit elsewhere, but still want to ensure they can have a good Christmas. By signing onto these schemes, they will end up in far worse situation in the longer term. 

So what are the other options?

Unless you always pay off the balance of your store card in full before it starts accruing interest, then store cards are best avoided altogether.  

Instead, why not switch to a credit card which offers a 0% on new purchases deal? Take a look at the Capital One Platinum Card which offers users a 0% on purchases period until 1 November 2009. That's more than a year of interest-free payments!

The Halifax All In One Mastercard also offers 0% for the first 10 months on everything you buy as well as 0% for the first 10 months on all balance transfers made in the first 90 days.

Another option is to use a cashback credit card, but only use this if you can guarantee you will pay off the balance of the card in full each month.  This way you will actually be rewarded for your spending because part of your spending is refunded to you. Usually this refund is paid to you at yearly intervals either via a cheque or a credit to your card account.

The American Express Platinum Cash Back Card for example, gives you 5% cashback every time you use it for the first three months up to £200. After that, you earn 0.5% cashback on the first £3,500 you spend, 1% on £3,501 to £10,000, and 1.5% for purchases over £10,001. 

But there's still one problem. If your credit rating ain't great, you may not be able to get any of the above cards. And I fear that it's people who with poor credit ratings who are most likely to take out a high-interest store card. There are, however, some credit cards that are marketed to people with poor credit ratings. The Barclaycard Initial card is one of the better ones. It does charge a high 27.9% interest rate, but that's far better than the Argos card.

Of course, the best solution is to pay off the balance of your account in full every month......

Other loans to avoid

Store cards are not the only bad way to borrow money. Payday loans and logbook loans are particularly bad news. Both of these ways of borrowing have unbelievably high rates of interest and should be avoided at all costs.

Seek advice

If you are struggling with debt, don't push it to one side. Seek help by contacting the National Debtline and Citizens Advice Bureau which both provide free confidential and independent advice. Or check out Dealing With Debt discussion board.

In the meantime, steer clear of all store cards that look suspiciously tempting this Christmas!

More: The Worst Ways to Borrow Credit Cards For Crafty Customers