SHOP HORROR

25/11/2007

It's so tempting at this time of year, with all those Christmas prezzies to buy, to put it all on your card and worry about paying for it later.

But shoppers using store cards are being warned they could end up with a painful debt hangover come the New Year.

Research by the website MoneyExpert.com shows that, in spite of recent action by financial watchdogs, store cards are still charging eye-watering interest rates of up to 29.9 PER CENT.

And with more than £2billion spent on the cards last year - and over half of store card customers paying interest on the money they've spent because they don't clear the debts quickly enough - it's easy to see how the debts build up.

Sean Gardner, chief executive of MoneyExpert.com, says: "With store cards the advice is simple - don't use them. Avoid the gimmicks, don't be lured in.

"Invariably people forget about spending on their plastic, or they use credit precisely because they know they won't be able to repay the debt immediately. There is no more expensive form of borrowing than a store card."

Our table on the right shows a selection of some of the most expensive store cards, and the discounts and offers that are designed to tempt consumers.

It also shows how much interest you;d end up being charged after a year if you spent £1,000 on one of these cards and only made the minimum monthly repayments.

Rob Kenley, head of credit cards at Moneysupermarket.com, says: "Christmas is a time when many people might be tempted by the various store cards.

"While many have attractive perks on offer such as in-store discounts or introductory offers for purchases, shoppers can end up paying well over the odds in the long run.

"Store cards frequently have much higher interest rates than credit cards, which makes them an extremely expensive form of credit. You could end up paying almost £1,000 in interest over a year if you spent £1,000 each on cards from Warehouse, Miss Selfridge, Dorothy Perkins and Burton."

Following an inquiry by the Competition Commission, all store card providers now have to print warnings on statements if they charge interest of 25 per cent or more.

They also have to include an "honesty box" which outlines interest payments and penalty charges, and warns about the dangers of making only the minimum monthly repayment.

But these measures have failed to stop many providers charging steep interest.

Mr Kenley says: "If you plan to make an expensive purchase, the best course of action would be to take the discount on offer but ensure you either pay off the amount in full within the interestfree period, which is typically 56 days, or transfer the balance to a credit card offering zero per cent on balance transfers.

"If it's doubtful you will pay off the debt within that time, it's probably best to leave these cards alone altogether."

There are much better credit card options, such as cards which charge zero per cent interest on purchases.

For example, Halifax's Purchase Mastercard offers zero per cent for the first 15 months. After that the rate is 14.9 per cent - still much lower than most store cards.

HSBC's Bank Credit Card is also offering zero per cent on purchases, but for 12 months, after which it reverts to 15.9 per cent.

Nick White, of comparison website uSwitch.com, says: "Overall, unless a consumer really has the funds and the discipline to repay their store card in full, they would be better off with a zero per cent credit card."

For those who do pay their balance in full, cashback credit cards are a great way to earn some money back from purchases.

American Express's Platinum MoneyBack Credit Card, for example, offers 5 per cent cashback for the first three months on a spend up to £4,000 - which is equivalent to £200 cashback.