Tuesday, August 26, 2008

Consumer credit accounts: great stores with flashy perks, high rates and lots of debt for everyone.


Do the math when retailers offer special deals for their store credit cards. Behind the bonus dollars and discounts are often outsized fees and feeble rewards.


Department stores and specialty shops are giving their "very special" card customers another reason to shop: rewards.

After years of piling on the perks, many major store cards have added rewards. The aim? To keep loyal store card customers coming back for more, of course.

But don't let the promise of a 10% discount, exclusive offers and rewards lull you into agreeing to a lousy card deal. There's nothing rewarding about having your money sucked away by high interest rates.

"These rewards don't come for free," says Paul Richard, executive director of the Institute of Consumer Financial Education. "Put the pencil to it and see if it's really going to benefit you."

With most reward programs, you earn points for a rewards certificate good toward a future purchase at the shop or department store. Rewards certificates range from $10 to $25 and the rate that you earn rewards varies widely from store to store.

Expensive bonuses
Charge $250 on a GapCard or a Linens 'n Things card and you earn a $10 rewards certificate. The variable interest rates on the cards, 16.55% at the Gap and 16.85% at Linens 'n Things, aren't sky-high but they're not all that great either, especially when you consider all the zero-percent credit card offers available now.

With a store card from Nordstrom, you'll have to spend a whole lot more than $250 to cash in on any reward. And like any department store card the interest rate is through the roof. You pay a 21% interest rate any time you carry a balance on your Nordstrom card, and the rewards are tough to land.

You earn just one point for every dollar you charge on your Nordstrom card. To earn a $20 certificate from Nordstrom, you'll need to rack up 2,000 points, which means you'll need to charge a cool two grand. But at least you earn points from your very first Nordstrom card purchase.

At Bloomingdale's, you've got to do some serious charging before you earn even a single rewards point. To qualify for rewards at Bloomingdale's, you have to spend at least $1,000 annually on your Bloomingdale's card.

Three percent of each purchase you make goes into your rewards tally. So spend $100 and you've earned three reward dollars. To earn 25 reward dollars, you'll need to charge about $834. If you shop at a double rewards event when 6% of each purchase gets counted toward rewards, you only need to spend about $417 to earn a $25 rewards certificate. It's too bad this deal isn't available to everyone who carries a Bloomingdale's store card.

Bad news at Bloomingdale's
Folks who carry a plain old account with Bloomies may get advance notice of sales and private preview days, but they can't earn a single rewards point -- not until they charge $1,000 in a single calendar year.

So when you think about it, to earn a $25 reward at Bloomingdale's you'd have to spend at least $1,834, or $1,417 if you shop during a double rewards event. That's not much of a reward, is it? And the interest rate on a Bloomingdale's card is nothing to brag about either: a hefty 21.6% .

At Banana Republic, store card customers that charge $800 in a single year qualify for a special Luxe card. Luxe customers get free alterations on all purchases and snag a $25 reward each time they pile up 500 reward points on their cards. Luxe customers earn one point for every dollar they charge on their cards except during double points week, when they earn two points for every dollar they spend. To earn a $25 reward, you'd need to spend $500 on your Luxe card or $250 during a double points sale, after spending $800 to earn the card. On special Luxe days, you may be able to earn triple points on some purchases.

Folks with a regular Banana Republic card can earn rewards points as well. Banana Republic card holders earn one point for every dollar they charge expect during double points weeks when they earn two points for every dollar they spend. To qualify for a $15 award, you need to rack up 350 points. You could earn that in a snap by spending $175 during a double points week.

But before you go on a Banana Republic shopping spree, consider the fixed 17.4% interest rate you pay if you carry a balance on your Banana Republic or Luxe card.

They want you to spend, spend, spend
Don't forget that every store card program has a single aim: tempting you to spend more money. That's why you're alerted to all those "exclusive" sales and previews.

A rewards program, even a good one, is just another way to entice you into spending more money in a particular store.

"Retailers want you to visit the store again and again," says Gerri Detweiler, author of The Ultimate Credit Handbook. "You may end up spending more on things you don't really need or want just to build up rewards."

The trick is to take advantage of store card perks and rewards without going overboard with your spending. Buy things that you need during special sales and pay off your balance every month. If you earn points toward a future reward or discount, that's great.

If you do go overbroad with your spending and find yourself stuck with a hefty balance on a store card with a high interest rate, consider transferring the balance to a lower-rate card. Why not snap up a card deal with a zero-percent teaser rate?

Paying zero-percent interest for a year sure beats paying more than 20% interest on a store card.

Consider cards with co-branded perks
Want store card perks and rewards without the steep interest rate? Look for co-branded store credit cards. Unlike traditional store cards, you can use these cards to make purchases outside a department store or specialty shop. They also tend to have lower interest rates and more robust rewards.

Consider the TJX Platinum Visa card from Capital One. You earn 5% rewards when you shop at any T.J. Maxx, Marshalls, HomeGoods or A.J. Wright store and 1% rewards when you shop anywhere else. Whenever your rewards dollars reach 10, a $10 certificate is mailed to you.

Spend $200 on your TJX Platinum Visa at a T.J. Maxx store and a $10 certificate will be headed your way. That's not a bad deal. And neither is the 1.9% APR you pay on card purchases for the first six months. After that, a fixed 9.9%, 12.9% or 19.8% interest rate kicks in, depending on your credit.

The interest rate on BJ's Platinum MasterCard from First USA is even more impressive. You enjoy a zero percent teaser rate on purchases and balance transfers for six months, followed by a variable APR of 9.9%, 11.9% or 15.9% depending on your credit. It's too bad the rewards on this card are so puny.

You earn just 1.5% rewards when you use the card at any BJ's Wholesale Club. When your reward dollars, called BJ's Bucks, total 20, a $20 check is mailed to you. To reach the $20 rewards mark, you'd need to spend about $1,334 at BJ's Wholesale Club.

You also earn rewards when you use the card outside of BJ's, but it's nothing to get excited about. If you carry a balance on your BJ's card, you earn 1% rewards on any outside purchases you make. If you pay your balance in full each month, you earn a measly 0.5% rewards when you shop outside of BJ's.

Loyal Nordstrom customers may want to consider signing up for the Nordstrom Platinum Visa instead of a Nordstrom store card. The rewards and the interest rates on the Nordstrom Platinum Visa are a whole lot better.

With a Nordstrom Platinum Visa you earn two points for every dollar you charge at Nordstrom. Once you pile up 2,000 points, you receive a $20 certificate good at any Nordstrom store. True, you'll need to spend $1,000 at Nordstrom before you earn a $20 certificate, but that still beats the $2,000 you would have to spend on a Nordstrom store card to nab the same $20 reward.

Plus, with a Nordstrom Platinum Visa you pay an interest rate of 8.15% , 11.15% , 15.15% or 19.15% , depending on your credit. All of those deals beat the 21% interest rate you pay on a Nordstrom store card.

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