Store Card Debt

In the UK there are more than 11 million people who hold store cards and the total outstanding balances on those cards now exceeds £2 Billion

Problem Areas in Regards to UK Store Card Debt

There are quite high interest rates attached to store card debt that you will want to be aware of because it is extremely easy to allow debts on your store card to pile up. In the UK this is becoming an increasingly difficult problem due to the public embracing the convenience that store cards offer them.

For British shoppers, the allure of saving up to 20% on purchases via store cards is nearly irresistible. However, the downfall of giving in to this temptation is that interest rates on store card debt can be as high as 30% so as you can see, the savings are then nullified and the store card companies end up profiting quite handsomely. Millions of consumers are facing debt trouble from this situation.

What a store card is:

A store card is a branded credit card that is usable only in a single shop or chain. Traditionally, they are the most expensive method by which you can borrow money because the APR (Annual Percentage Rate) is 30%, double the rate of a high street credit card.

Understanding the benefits store cards offer:

- Consumers can use store cards during a significant period of no interest being charged and take advantage of incentives or special offers that the retailers have in order to compound their savings

- Certain customers want a relationship with a certain store or brand and since they are able to obtain discounts from these favored stores or brands they feel the card is beneficial to them. Often, they are told about new merchandise before customers who do not have that store card. These customers appreciate the ‘designer label’ feel of owning and using a store card.

Understanding the disadvantages store cards can pose:

While credit is an extremely useful tool for millions of people in the UK, it is still important to be aware of the risks posed by any unsecured credit. A lack of financial education can leave people vulnerable to poor decision making when it comes to balancing their finances. Those who are already struggling financially face danger when they give in to temptations of ‘interest free’ offers or ‘pay nothing for six months’ programs that sound more beneficial than they end up being in light of that individuals real monetary circumstances. Often, consumers who spend this way are simply hoping the future will be brighter than the present and so they willfully take on unwise debt knowing the consequences that can result and hoping they will avoid them.

Many times, over eager sales people promote store cards to customers that are uneducated in how to use them properly. With these customers, offering incentives can really win them over because they do not understand the full ramifications of what will happen when they are unable to avoid the high interest rates by paying off their debt in time. It is extremely easy to talk a person into signing up for a store card because the benefits are real, but unless the customer can truly pay the debt back within the time frame then the store card is a liability, rather than an asset. While it is tempting to try to benefit from the discounts offered on your shopping expenditures, it is all too easy for that store card debt to rise out of reach.

Since the incredibly high interest rates are the danger with store cards, it is commonly advised that consumers avoid them unless they intend to and are able to pay down their store card bill as soon as it arrives. Shoppers who have budgeted money to pay off the balance during the period without interest can benefit from these borrowing tools.

Who provides the majority of store card debt?

Over 20 million store cards are issued annually in the UK and in 2007 alone, store card debt totaled over 2 billion pounds. Approximately 70 UK retailers offer store cards, primarily those in the department store and retail clothing sectors.

Research indicates that the following store cards are the most expensive in terms of debt:

- Dorothy Perkins

- Warehouse

- Miss Selfridge

- Laura Ashley

- Burtons

- Topshop

- Oasis

- Russel and Bromley

- Toys R Us

To give you an idea of exactly how severe the interest charges on store cards can be, the average store card charges close to 25% APR. At this rate, an £800 balance would end up costing £126.83 in interest per year. Yet due to the easy application process for store cards versus lower interest rate credit cards, UK consumers continue to be seemingly obsessed with this method of borrowing.

Debt troubles from store cards have led many people to seek solutions and here are a few of those that have worked for others:

Debt Management Plan – With this option, you can make one payment per month that is divided up between creditors for you by a professional Insolvency Practitioner. You can find out more about Debt Management Plans in the UK by using the web.

Individual Voluntary Agreement (IVA) – This form of insolvency is growing in popularity each year because it is not as severe in consequences as a bankruptcy, but does free a person from debts over time. Creditors appreciate an IVA and often work with those who seek them since they are more likely to recover their debts than with a bankruptcy. Since an IVA is less devastating to your credit, it makes it easier to obtain credit once again after you’re back on you feet financially. Also, while you cannot force any creditor to work with you, your Insolvency Practitioner who sets up your IVA will often be able to negotiate a freezing of interest to rein your debt in.

Bankruptcy – Typically, this is a last resort means of dealing with store card or other debts. It generally comes with the loss of all the major assets owned by that debtor.

If you are struggling under the weight of debt from store cards, the important thing is not to wallow in the guilt, but to seek out a solution. Those outlined above may be right for your situation so do not hesitate to find out because you deserve a chance to get your finances back under control.