Our Guide to Reducing and Managing Your Store Card Debt

Love debt free Store Card Debt
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Store cards can be a great way to nab discounts and save on purchases if you pay off all your balance right away, but lenders rely on the fact that most of us won’t do this. Once any introductory offers have expired, store cards can end up being a very expensive form of credit– and it is easy to find yourself with debt that just won’t seem to go away.

Store cards are notoriously an expensive form of credit with the average interest rate 29%.

However, that doesn’t have to be the case; there are a number ways to start making a dent in your store card debt.

It helps to first understand how store cards differ from normal credit card debt:

Store Card Debt: Low Minimum Payments

Store cards normally have a very low minimum monthly payment, normally just a tiny bit more than the monthly interest. While in the short term this can make your debt feel like it’s affordable, only making the minimum repayment can cost you in the long run. Because the repayment is so low, it means you can end up paying back a lot more than you borrowed and spend years trying to clear your debt.

If you only make minimum payments for a long time, your credit provider will send you a letter telling you that your account has been in ‘persistent debt’ (read more on this below).

For example:

Using these figures, which are representative of some popular UK store cards, it’s easy to see how the temptation of an affordable minimum repayment can cost you dearly in the long run.

  • Minimum repayment: 1% (of what you owe) + interest
  • Interest: 25% APR
  • Balance: £1000

Time to pay off loan making minimum repayment: 10 years, 7 months

Total repaid (including interest): £2402.48

Total interest paid: £1402.48

Statistics according to bankrate.com credit calculator.

Store Card Debt: Tempting Incentives

Many store-card providers will offer shoppers incentives to open an account. This may include vouchers, exclusive discounts or an interest-free period (usually 3-6 months) on their ‘buy now, pay later’ purchases. 

While many banks also offer interest-free introductory periods on their credit products, store cards can be easier to apply for and don’t always require you to have good credit to hold an account, which can make them seem like an attractive offer if you have poor credit. 

Store Card Debt: High Interest Rates

When the introductory offer finishes, store cards tend to have very high rates of interest (between 25-30% APR).

If you are only making minimum payments on your balance, this means your debt can quickly spiral out of control and may last for years, because all of your repayments go towards funding the interest instead of paying off what you borrowed.

Store Card Debt: Restrictive Spending

Most store cards restrict your spending to the retailer you took the card out with, unlike regular credit cards which can almost all be used anywhere.

If you hold multiple store cards with different shops, you could soon find yourself trying to manage a long list of monthly payments to different providers.

Store Card Debt: Lack of Information

Store cards are often sold in-store at the tills. Although most of us would never dream of taking out a bank loan without reading the terms and conditions, it is easy to rush into an uninformed decision in the wrong environment. Cashiers may not always have detailed information about the card to hand, but that doesn’t mean it’s a good idea to skip reading the terms before signing up!

To be clear, store cards work best when you know you can afford to pay them off quickly- ideally before the end of the interest-free period.

However, things don’t always work out that way. Fortunately, if you have accrued store card debt, there are a number of straightforward steps you can take to start reducing it today:

Our 4 Steps to Reduce Your Store Card Debt

1 – Pay More Than the Minimum

If you can afford to, it’s a good idea to make more than the minimum repayment each month. There are several reasons for this: firstly, you’ll clear your debt sooner the more you pay back each month. You’ll also pay less interest overall.

Additionally, some credit providers interpret minimum repayments as a sign that someone is  struggling financially. If you’re only paying the minimum each month, some lenders might think twice before agreeing to give you credit.

Sidenote: ‘Persistent Debt’

It is also important to pay more than the minimum repayment to avoid something called ‘persistent debt’.

Store cards are regulated by the UK’s Financial Conduct Authority. If you only make minimum payments for 18 consecutive months, the FCA requires your store card provider to contact you and inform you that in that time you will have paid more in interest alone than on your balance.

You don’t have to do anything when you receive this letter, but it should be a reminder that you’re not making any dent in that debt which you will eventually have to repay in full.

If you continue to make only minimum payments, you’ll receive another notice after 27 months.

After 3 years of consecutive minimum payments, the store card provider is obliged to help you find an alternative payment plan.

This could be another credit product, such as a credit card, or a personal payment plan adjusted to your budget to (hopefully) help you pay off the debt faster.

At this point, the provider also has the option to close your account. This means that you will no longer be able to use the card but are still be expected to keep up with payments and any late fees or charges.

If you don’t keep up with payments, your debt could be passed on to a debt collection agency. If you are worried about not being able to make repayments on your store card debt, it is a good idea to speak to a debt advice organization.

2 – Balance Transfer Credit Card

If you have a good credit rating, you may be able to transfer your store card debt to a credit card. Credit cards usually have much lower interest rates, and many come with long interest-free periods when you open the account.

This could mean you end up paying significantly less overall and paying off your debt much sooner because more of your monthly payments go towards paying off your credit, rather than just the interest.

You will normally need to pay a fee of 1-3% to transfer existing debts to a new credit card, but this is still often much cheaper than continuing to service store card debts with very high interest rates.

3 – Prioritise Your Debts

If you are burdened with several store card debts that you can’t afford to pay all at once, concentrate on paying off the debt which is most expensive first. Typically, this will be the one with the highest interest rate or with a much bigger balance than the others.

4 – Divert Other Funds

If you have savings or other capital, you might want to consider using it to clear your debt. Although it might feel like a blow to use money you had set aside for something else, you could end up saving more overall as you won’t be building up interest on your store card debts.

Our Tips to Stay Store Card Debt-Free

Read!

Remember that store cards are a form of credit, and you should read their T & Cs carefully. Only take out accounts when you understand your obligations and feel confident that you can meet them comfortably.

Ditch Debt-Ridden Cards

If you’re in the process of trying to pay off store card debts, remove any temptation to rack up your balance again by cutting up the store cards.

If you need to keep them in order to make your repayments, make sure they are stashed out of sight somewhere at home rather than in your wallet.

Be Organised

Don’t get caught out at the end of introductory offers on store cards or balance transfer credit cards. Whenever you sign up for a new credit product, make a note of the any payment deadlines and the date when your introductory offer expires.

How Can Love Debt Free Help?

Here at Love Debt Free, we have partnered with some of the UK’s leading Debt help companies.

They have already helped thousands of people reduce and manage their debts, and they can do the same for you.

Choosing an independent adviser means they won’t recommend a scheme unless they are sure it is in your best interests. Their advice is also regulated by the FCA, which gives you an additional layer of protection.

If you would like to speak to one of these debt help companies, click on the below and answer the questions.

Len Burgess
Len Burgess
Len Burgess is a successful digital entrepreneur and founder of LBLK Publishing which specialises in Financial content. Len has been writing professionally on financial and business topics for 5 years before starting Love Debt Free.
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