The Worst Kind Of Christmas Card!

Don't fall into the trap of spending on a store card, as this could be a very costly error. We suggest three smarter options.

With Christmas just over a month away, our spending on credit cards is poised to surge. Alas, many shoppers will be stung by store cards this Yuletide, because this particular type of plastic charges unbelievably high interest rates.

All store cards offer incentives in order to encourage people to apply for them. For example, most will offer an initial discount, typically 10% to 20% off the first purchase. In addition, many store cards provide ongoing inducements to persuade cardholders to keep using them, such as money-off vouchers, exclusive cardholder evenings, sale previews and promotions, and so on.

There's nothing wrong with applying for and using store cards as such. Indeed, used wisely, they can provide you with significant savings in your favourite stores. However, the problems arrive when you spend more than you are comfortably able to repay and thus are unable to pay off your monthly bill in full. As the following table shows, if you have a balance outstanding on your card, then you're at the mercy of interest rates which can exceed 30% a year!

Don't Buys: the UK's most expensive store cards

Source: Moneyfacts, November 2006

* for payments other than by direct debit

In fact, according to independent financial analyst Moneyfacts (which powers the Fool's search engines for credit cards, personal loans, savings accounts, etc.), the average store card charges an annual interest rate of a whopping 24.6%. That's eight percentage points higher than a typical credit card, and almost five times the Bank of England's base rate, which is presently 5% a year. Ouch!

So, by all means take advantage of special deals and discounts for store cardholders, but never leave a balance lying on your account. Instead, try one of these three top tricks:

1) Move your debts to a 0% balance-transfer card

You can save a fortune by switching your existing store-card debts to one of the dozens of credit cards which charge 0% on transferred balances. To dodge interest on your credit- and store-card debts for up to a year, check out the Best Buys in the Fool's credit card centre!

2) Enjoy extended interest-free credit with a 0% on purchases card

If you want to spread the cost of your purchases for ten to twelve months without paying a penny in interest, check out these cracking credit cards, which charge no interest on new purchases for up to a year!

3) Pay an ultra-low rate of interest with a lifetime balance transfer

If you don't want to be a rate tart (someone who repeatedly surfs their debts from one 0% card to another), then another option is to shift them to a credit card which charges an ultra-low rate on balance transfers until they are completely repaid. Top picks in this category include:

• Marks & Spencer Money &More MasterCard (3.9% a year);
  
  
• Citi Online Platinum Life of Balance MasterCard (4.9% a year, plus a transfer fee of 2.5%, maximum £75);
  
  
• Intelligent Finance Life of Balance Visa (4.9% a year);
  
  
• Lloyds TSB Platinum Rewards Amex Credit Card (5.5% a year, plus a transfer fee of 2.5%, minimum £2.50); and
  
  
• Sainsbury's Bank Platinum MasterCard (5.94% a year).

I'll leave you with one final tip: if you've applied for a credit card for one reason (such as for balance transfers), don't use it for any other purpose. Otherwise, you could end up paying standard rates of interest on any additional spending, so stick to single-use only!

More: Use the Fool to find terrific credit cards, mortgages, personal loans and savings accounts!