The Worst Xmas Shopping Rip-Off... Ever!

Take out a credit card from a big high street store this Christmas and you could still be paying the price next year.

I was in BHS earlier this week, shopping for some new furniture and peacefully minding my own business. As I was sitting on a bed and eyeing up the price-tag, a shop assistant came up to me with a big smile on her face. "Would you like to take out a store card today?" she asked, completely unaware that she was about to feel the wrath of a small, curly-haired, store-card-loathing dragon, aka: yours truly.

The fact is, this is one of the most dim-witted questions you could possibly ask a Foolish writer. "Absolutely not!" I told her ferociously, before demanding: "What's the APR?"

As my boyfriend looked on, embarrassed and wishing he was in a galaxy far, far away, she went away to check with her manager. That's right, she didn't know.

It was at this point that I started breathing fire. It drives me crazy that, unlike a mortgage or an insurance policy, people can sell store cards without any formal training - never mind a recognised qualification.

The APR or Annual Percentage Rate of the average store card -- and BHS is one of the worst offenders -- is 28.2%, almost twice the rate of a normal credit card.

This means that, if you don't pay off your bills in full every month, you pay 28.2% more than the purchase price - twice as much as you would be charged on a typical credit card, and nearly five times the Bank of England Base Rate (the rate at which the Government lends money to banks).

No wonder hundreds of people post on our Dealing With Debt discussion board every year, desperate for advice after racking up thousands of pounds of debt on these rip-off cards.

Call me cynical, but I suspect that some people are duped into taking out on these cards because the friendly shop assistants who sell them have little idea how much of a stinking rip-off they really are.

But am I being a bit unfair here? Are these cards really such a rip-off? And if so, what's wrong with them?

Painful purchases

Let's look at the facts. On the face of it, many store cards offer what seem like fantastic discounts and benefits. For example:

Dorothy Perkins: 20% off one transaction every six months, free delivery on orders over £60, entry into monthly prize draws.*

New Look: 10% to 15% of first purchase, monthly discounts.*

Miss Selfridge: 10% off first purchase, discounts and vouchers.*

*Among other offers

So far, so good. But let's take a look at how much I would ‘save' if I took out a store card at Miss Selfridge, bought myself a sparkly new Christmas party outfit, and then only made the minimum payments on my 28% APR store card:

When I hand over the card to pay at the till, I think I am saving £12 with the 10% discount.  But as the table shows, the dress would actually end up costing me an extra £30.24 on top of the retail price of £120, just because I used the store card instead of paying by cash.

Effectively, that 10% discount actually costs me nearly three times what it seemed to save me.

And remember, I got a 10% discount with my first purchase. If I had then gone back and bought, say, a sequinned party bag, the relative cost of using my card would have been even higher.

Buy now, pay later

While I personally avoid them like the plague on principle, I should emphasise there's nothing inherently wrong with store cards, as long as you pay your balance off in full every month. You'll get the discounts and the benefits, and you won't pay a penny in interest.

But if you prefer to ‘buy now, pay later', these cards are definitely not your best option. Instead, you should opt for a credit card that offers 0% interest on new purchases for say, 12 months. That would mean you could bung all your new purchases on a card and, as long as you paid the balance off in full before the year was up, you wouldn't be charged any interest (saving you £30.24 in this case).

For your information, here's a list of the most expensive store cards:

If you have any balance outstanding on these cards, I suggest you switch over to a 0% balance transfer card immediately. This will ensure you stop paying interest on your balance for a few months, allowing you time to pay off your debt without racking up punitive charges. You will usually be charged a small transfer fee, but it should still work out much cheaper than keeping your balance on a store card.

Christmas Spirit

Finally, a word of warning. It's the start of the Christmas shopping season and, with hundreds of shoppers set to enter their doors over the next six weeks, department stores are stepping up their efforts to sell new customers their rip-off cards.

So if a shop assistant comes up to you and invites you to take out a store card, think very carefully. Unless you're 100% sure that you can pay off the balance each month, steer clear!