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  • Bob Brooks

Santa Says...Careful with Christmas Credit Offers

Retailers will be doing everything that they can to get your attention and your business this Christmas. Often times, they make the purchase extremely easy and non-threatening by offering deferred interest plans. A deferred interest plan is a credit card offer that defers the interest on a purchase for a certain time period, usually a year. So, for 12 months for example you make a payment paying down the principle of the debt with zero interest charges. The catch is that if you don’t pay it off on time within that deferred interest window, they add back in all of that interest that was originally deferred. It is especially dangerous for three reasons...

First, it makes it easy to pay today and takes advantage of human nature. It is human nature to assume that you will be able to pay for it in that 12 month period therefore never incurring those high-interest rate charges. It is very easy to rationalize and come to the conclusion that you will figure it out within 12 months. Second, according to a survey, 52% of people do not know how deferred interest works. The consumer that might not have a good understanding of how these plans work considers it a good deal and takes the credit offer. The payment is typically low. You are less likely to be able to pay it off by making low minimum payments. Finally, according to that same survey, the average store credit card has a regular APR (interest rate) of 28%. Plus, because they are charging such high rates, they can grant credit to consumers with lower credit scores. There should be laws in place against retailers charging rates that high. As I always say, credit card offers are not designed to give you a good deal. They are designed to set you up to fail because credit card companies understand human nature. Unless you can commit to 12 monthly payments that end up paying the item off in 12 months, I would stay far away from the temptation of easy credit. For more information regarding the above-mentioned survey, WalletHub today released its 2020 Deferred Interest Survey and its annual Store Credit Card Landscape Report in order to help people get the most out of retailer financing offers.

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