Opening holiday credit cards

With piles of holiday presents, who wouldn’t want to be handed a ‘free’ gift card, or see a percentage shaved off their bill, just for agreeing to open a credit card at check-out?

Creditcard.com’s Ted Rossman says lots of us jump at those impulse offers. He explains, “About 81 percent of women who’ve applied for a retail card have done it impulsively at the counter at least once. 69 percent of men have done so. I would urge people to breathe a little bit. Take a brochure home. Take a website address home. Check it out at your leisure. Don’t feel like you have to make a decision in the moment.”

The savings may sound significant, especially when you’re spending more over the holidays, but Rossman says those deals aren’t as sweet as they seem. For one, the interest rate is higher on retail credit cards than general ones. “It’s very high. It’s close to 26 percent. It’s up about three quarters of a percentage point from last year. And it’s much higher than we see on general purpose cards. The average general purpose card is charging about 21 percent interest,” he says.

Break it down and see how it adds up if you don’t pay the balance off in full. Rossman explains, “25 percent interest on a card that has a thousand dollar balance– that’s 250 dollars a year. That’s a big chunk of change.”

So, saving 20-percent for opening the card may not add up to as much as the 25-percent interest you end up owing once you charge it.

Rossman also says the deferred interest offers we see over the holidays are not the free lunch people think they are. He explains, “That bill has to be paid in full by the due date or the issuer is going to charge retroactive interest from the very beginning on the full balance. So, if you have one dollar left, you’re going to be liable for interest on the big amount from the beginning.”

So, not only will your holiday savings will be gone, you’ll end up paying more!

He does say there are times when an offer will work in your favor, though. “There are cards from Amazon, for instance, and Target and Best Buy. Lord and Taylor and the Gap, that they all give five percent back on everything you buy. So if you buy a lot from those stores that could really help you,” explains Rossman.

You just have to be sure what you’re getting back is more than the interest you’ll be paying. There’s at least one way to be certain that’s the case. Rossman says, “You have to pay the balance in full every month. If you can do that, then the rewards can work for you, but absolutely have to pay that bill in full.”