Perhaps you’ve heard this advice before: Store credit cards are evil!
When the clerk at Old Navy asks you “Do you want to save 10 percent today by opening up a credit card with us?” say, “no way, that’s stupid! Saving 10 percent to pay 30 percent interest!”
So it might surprise you that Lauren and I have a store credit card account that we use all the time…at Target.
OUR TARGET RED CARD
If you’re not familiar with Target and their card, the Target “Red Card” gives you 5 percent back on everything you buy. (All the time; not just the day you open it, like a lot of store credit cards.)
Compared to cash rewards credit cards that pay 1 percent, maybe 2 percent back and up to 5 percent back on a limited number of items, that’s a pretty good discount.
And my wife and I do a lot of damage at Target. For convenience, if we can buy something there, we typically do. Diapers, clothes, cat food, toiletries, even some groceries. So if we spend an average of $500 a month at Target, 5 percent off is $300 a year. It also qualifies you for free shipping from Target.com and extends your return period for an extra 30 days.
If you fill your prescriptions at Target you will get an additional 5 percent off for one day of shopping for every two prescriptions you fill. The 5 percent off from the Red Card can be stacked on top of your pharmacy rewards for extra savings.
Every time I was offered this card at the checkout, I thought about how the savings would add up, but I always said no because, as a financial blogger, store credit cards are just “evil”. That was ingrained.
And it’s true that these store credit card accounts can be traps. Often times we get them when we’re young and financially inexperienced. We buy $500 of clothes and make payments for a year…at 29 percent interest. It’s easy to open one at every store, cluttering our credit history and dragging down our credit score.
BEWARE ONE SIZE FITS ALL ADVICE
But just because some of these products are crappy and some people abuse them doesn’t mean they’re always a bad idea for everybody. Everybody has different financial goals and priorities. (And that’s a good thing!)
Unfortunately, so much mainstream financial advice is one-size-fits-all. The talking heads on TV love to preach, “all debt is evil” and “you can’t afford it”. But the truth is, what’s right for me might not be right for you.
Case-in-point: Ten years ago, I should never have applied for a new credit card. I would have maxed that baby out faster than bunnies make babies. I was high on credit and hungry for more.
Today, my spending is in check and I’m in the habit of paying off credit card balances in full each month. So there’s little reason not to get this card and take advantage of the savings it offers. Yes, this card has a fairly crazy APR (22.90 percent), so anybody who is even thinking of using it to pay off a 60” LED TV over 12 months should get a financial intervention.
But, if you spend a lot at Target like we do, the Red Card might make sense.
Target Red Card Debit Card
If you don’t have the credit history to get approved for a Target Red Card credit card (or you’re just opposed to credit), there’s another option that can still net you the 5 percent savings: a debit card version of the Target Red Card.
You still get the 5 percent discount and the store benefits because they don’t have to pay Visa or MasterCard’s interchange fees. The card is linked to your bank account, so when you swipe it, the money comes directly out of your linked checking account.