KNOXVILLE (WATE) – There is a new survey out regarding interest rates on retail credit cards. It falls right in line with a question from a viewer, suggesting your favorite store may not be a good bargain if you have a big balance and only pay minimum payments.
Tina in LaFollette asks: “I noticed the average yearly interest rate on one of my charge cards from a big department store is above 23 percent. Why is that?”
For those of you who carry a balance on a credit card issued by a large retailer, the annual percentage rate, or APR, is 23.23 percent according to a new report issued by CreditCards.com.
That percent rate is more than eight percentage points higher than the national average for all credit cards, 15 percent.
Those higher rates for retail credit cards can mean big costs if you carry a balance for several years. For example, if you had a $1,000 balance on your retail credit card and only make minimum payments, it would take you 73 months to pay off the charge, and that would amount to $840 in interest fees.
On the other hand, at 15 percent APR, for the average credit card, the interest rate on that $1,000 balance would drop to $396 and the payoff time would drop to 56 months.
To encourage you to sign up for a store credit card, retailers will dangle an incentive in front of you like 15 percent off a purchase.
If you carry a balance for several months, the higher interest rates far outweigh the one-time discount you get for the store’s credit card, and you end up on the lower end of the payment scale.
However, retail store card holders who pay their balance in full each month can find value in retail rewards programs.
To encourage loyalty for store card holders, the CreditCards.com survey found that incentive programs are on the rise and multiple tiers are being added to encourage your spending at their respective stores.
You can see Don Dare’s 6 On Your Side Answers every Tuesday and Thursday on 6 News at 4:00. If you have a question you can send Don an email at firstname.lastname@example.org or call his 6 On Your Side hotline at (865) 633-5974.