Credit Card Guide
 
Follow Us  twitter facebook You Tube Google+
 
Credit Cards > Credit Card News > Ask Erica > Why You Shouldn’t Buy Furniture With a Store Card



 
 

Why You Shouldn’t Buy Furniture With a Store Card

 
By
October 27, 2011
Ask Erica
tools
tools
email print comment
tools
SHARE

QHi Erica,
Th_8-tips-choosing-rewards-cardMy husband and I just moved into our first home. Money is very tight right now because we also just had our first baby, and I’m no longer working. Our new home is larger than our last and we need furniture. We don’t have any money in savings right now, so we only have two ways to go: One is to use my husband’s credit card and buy the furniture with it at 18.9 percent APR and the other is to open the store’s credit card (Macy’s) and use their 0 percent financing deal. I know that getting a new credit card will hurt our scores though, so which do you think is the better idea? — Marsha

ADear Marsha,
Oh boy, I don’t think you’re going to like my response … because I think you should scramble up some plastic crates, give ‘em a good scrub and use them for everything from makeshift dining tables to chairs and bookshelves.

Look, I know it’s tempting to use credit to furnish your new home, but it doesn’t appear that you can afford to play interior decorator right now. You have nothing in savings and only one of you is earning a living. That puts you in a terribly precarious financial situation!

What happens if your husband loses his job? Or if you have a sudden, large and truly necessary bill to pay for, like a medical crisis or a home expense that is not covered by insurance? With a newborn who is totally dependent on you for financial security, both of you need to be committed to setting cash aside for the unexpected. Ask Erica

Before you buy anything major — either with cash or credit — scrimp and save. Accumulate at least a few month’s worth of necessary expenses (such as mortgage, groceries and transportation costs). Once you have a decent sum squirreled away, you can begin to consider ways to swap the crates for something lovelier.

Saving for the furniture so you can pay with cash is the best way to go, though charging the items can be OK too — as long as you have a plan to repay the debt in less than a year.

So let’s return to the 0 percent financing versus existing credit card debate. Here’s a comparison, if you were to spend $5,000:

  • If you used the credit card at 18.9 percent APR, you’d have a $461 monthly payment with total interest charges equaling $527.
  • If you used the store deal, you’d have a $417 monthly payment with total interest charges equaling $0.

Slam dunk in favor of the store card, right? Well, only if you pay the entire balance when you should.

If you don’t pay off the balance before the promotional period expires, it looks like Macy’s will add 26.99 percent worth of APR financing charges back in, not to the balance you have remaining, but to the amount you borrowed in the first place (see Macy’s website for more details). That would mean you’d instantly owe another $761!

To add to the ouch, that’s a mighty high interest rate that will continue to accrue on the outstanding debt. You could be paying that sofa set and entertainment center off well after they’ve become shabby.

Determine if you can easily afford the monthly payments by delving deep into your budget. After setting cash aside for emergencies and paying for essentials, do you have another $500 bucks or so to go to your home furnishing goals? Only you and he know for sure.

Lastly, opening a new credit card shouldn’t hurt your credit rating (beyond a temporary ding from the lender’s inquiry). However, if you were to go for the store’s 0 percent financing offer, the amount you borrow will show up on your credit report as a loan, which will be factored into your FICO score. This very well may bring those numbers down until you pay off the debt — after which you may see a spike because you proved you could handle that type of credit with aplomb.

(Oh, and if you’re really opposed to crates, have you explored garage sales or asking friends and family members for cast-offs?)


Share 
 
     

 
 

VIEW RELATED STORIES

Share your card with an authorized user, not a co-signer - Sharing your card can wreak havoc on your credit no matter what you choose to do, but having a co-signer is more problematic than having an authorized user ...

Paying back a student loan isn't optional - In most cases, you can't discharge a student loan with bankruptcy, so it isn't going away. Even when broke, paying for your student loans should be a priority ...

Owner on the hook for company card debt - A business credit card remains the responsibility of the individual who applied for the line of credit, even if the company goes under ...

ALL CREDIT CARD NEWS & ADVICE ARCHIVES >>

 
     

 
  If you are commenting using a Facebook account, your profile information may be displayed with your comment depending on your privacy settings. By leaving the ‘Post to Facebook’ box selected, your comment will be published to your Facebook profile in addition to the space below.

Our editorial content is not sponsored by any bank or credit card issuer. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.
 
     


 
Secure SSL Technology
Secure SSL
Technology
 
Twitter Facebook You Tube Google+
About Us Privacy Policy Editorial Team Terms of Use
Contact Us California Privacy Rights Media Relations Site Map

Close X