A couple of months ago, Walmart clerks started asking me if I wanted to apply for a Walmart credit card. At first, I didn’t pay much attention, because many stores try to get you to sign up for their store credit cards, especially right before Christmas. But, I started to notice they asked every time I checked out and it was getting annoying. I have no interest in signing up for any new credit cards, especially one with a big yellow smiley face.
Attention Suckers, I mean Shoppers
Wednesday, I figured out why Walmart is pushing so hard to sign shoppers up for their credit card. I read in Fox Business News the Walmart Discover card now has an annual APR of 22.90%. This card previously had rates starting as low as 13.90%, but only the highest rates are now available for all new customers.
I’m not sure why such a consumer-friendly company like Walmart would have such unfriendly interest rates on their credit card. I suspect they are trying to make up for what is expected to be a tight Christmas season this year. But, taking advantage of loyal shoppers at Christmas doesn’t seem like the Sam Walton way. There is definitely a new mantra at Walmart and it is buyer beware.
New Higher Rates
Right now, everyone should be very cautious when signing up for any new credit cards. Because of the CARD Act of 2009, credit issuers have a much tougher time raising interest rates on existing cardholders. So, the strategy is to target new cardholders with higher rates. Unless you are paying attention when you sign up for a new card, you may get a very unpleasant surprise with the interest rate. After you ring up a balance, you may be stuck with that interest rate for a long time. Creditors are way less likely to lower their rates or offer balance transfers. Those days are over.
Beware of Store Cards
During the recession, shoppers have become much more frugal and it’s starting to affect the bottom lines of most retailers. So, they are working harder than ever to put merchandise into shopper’s hands, by extending credit. They offer some nice discounts on the first purchase to sign up for their store card. They also have loyalty programs to encourage customers to spend more.
As you can see, the interest rates on store cards are criminally high. Since store cards often have high interest rates and consumer unfriendly terms and conditions, I recommend avoiding them altogether. Most of these cards are underwritten by Citibank, HSBC Bank or GE Money Bank. So, the store and the bank are both taking a share of the interest.
Credit Card Alternatives
Layaway – If you remember the ’70s like I do, you probably remember bell-bottoms, disco and layaway. My Mom worked at Sears and she was a layaway technician. She could shop for a family of seven on a very limited budget and she never went into the red. Sears and Kmart have great layaway programs, to help shoppers avoid using credit.
Cash or Debit – Going on a cash diet right before Christmas can help start the New Year off on the right foot. Instead of paying off credit cards for the first half of the year, people could save or enjoy some of that money. They could skip the New Year’s resolutions about paying down debt and concentrate on losing that holiday weight instead.
Spend Less- The concept of going into debt each Christmas is relatively modern. Before the 1980s, people rarely used credit cards. So, they rarely spent more money than they had on Christmas. In the last 30 years, it seems like credit has allowed consumers to spend way too much. Kids don’t need 20 toys for Christmas. Adults don’t need luxury cars or jewelry. The last couple of years, we have spent less on Christmas and everyone in our family enjoyed it every bit as much. A few thoughtful gifts are enough.
Would Jesus want people going into debt to celebrate his birthday?
The Bottom Line
The bottom line is that a lot of people are broke this year, because of the recession and high unemployment. Those who are fortunate enough to have a steady income are paying off debt and saving part of their income. This hasn’t made the banks or the department stores happy. They are taking out their frustration on unsuspecting cardholders.
“No man’s credit is ever as good as his money.”
Edgar Watson Howe – American Novelist
This post was featured on the Carnival of Personal Finance over at PT Money. If you aren’t familiar with the Carnival of Personal Finance, you need to check it out. It’s the greatest carnival on the net.