Beware the dangers of store cards

Despite the near-constant bad press they have received since they were launched just a few years ago, it's easy to see the temptations of store cards.

Offered the chance to take around 20 per cent off my shopping and, with my common sense worn down by hours of enduring the jungle that is the modern shopping centre, I have often come near to signing on the dotted line, putting my newest flexible friend into the deepest recesses of my wallet and leaving dealing with the consequences to another date.

However, resist I have, and so should you as, for all of their short-term benefits, store cards remain almost guaranteed to leave you with a financial hangover in the New Year and beyond.

After all, who in their right mind would be swayed by the financial advice offered to them by a shop assistant not old enough to get an overdraft themselves or who have, at best, only a rudimentary grasp of the concept of APR and minimum payments.

Perhaps this is a tactic employed by the high street retailers as I cannot imagine how they would get any customers at all if they laid out their terms and conditions in large print and free of the usual financial jargon.

Recent research from the consumer watchdog Which? has highlighted the extortionate rates levied by the vast majority of store card lenders.

The average rate for such products now stands at a shocking 26 per cent, while rates of 30.9 per cent are not uncommon, more than double the rate of a normal credit card available on the UK market.

Paul Davies, head of research at Which? explained: "Sales staff in stores are incentivised to promote store cards and we are concerned that people won’t realise that the rate they have to pay is really very high.

"A monthly rate of 2.2 per cent may seem manageable, but the annual percentage rate (APR) is actually 29 per cent, which is extortionate," he added.

As an illustration, shoppers who purchase a £250 Playstation from Argos using the store's own credit card could end up paying twice that amount should they only make the minimum payments each month, as a large number of borrowers do.

To make matters worse, some well-known retailers are also pushing up their rates in order to encourage shoppers to sign up over the Christmas and January sales periods.

Of course, store cards can sometimes be a useful financial tool for the savvy consumer, allowing people to benefit from short-term savings and even representing an effective way for borrowers to build up a good credit history of responsible money management.

However, even the slightest slip can prove to be costly and one missed payment can easily wipe out any of the original savings.

For the majority of people therefore, cutting up store cards should be their number one New Year's financial resolution.