Credit Card Debt Management

Target Corp. announced in March that it was planning to sell half its credit card business for an expected $4 billion. It was later revealed that the buyer would very possibly be JPMorgan Chase, although another unidentified buyer is waiting in the wings as well. Regardless of who the buyer winds up being, Target could use the cash to buy back shares of outstanding company stock or to build new stores.

This is a business move that has been tossed around repeatedly among Target Corp.’s executives and shareholders. It’s not a bad deal, as the 4Q of 2007 brought Target $532 million off its credit card business alone. Not too shabby. However, the buyer may need to take the good with the bad. In March, the company’s annualized credit card balance write-off amount climbed from 6.8% to 8.1%. According to the company, which Blogging Stocks credits as the second largest discount retailer in the U.S., consumer defaults on Target retail credit cards totaled a staggering $55.5 million in March alone.

The benefits of buying half of Target’s credit card operations: It’s proven to be lucrative and retail credit lines are notoriously high-interest. The negative: The profit margin is apparently shrinking, and there’s no telling how long it will be this lucrative. After all, people are struggling to buy a tank of gas, a gallon of milk, and make the mortgage payment. The Target credit card probably falls pretty far down the list of most consumers’ priorities.

Target appears to be bleeding money in this credit operation, so it’s smart to finally unload half of it. Besides, it’s a good time to take any revenue generated by the sell and put it in company shares, development land and building costs while prices are relatively low. One can’t help but wonder, however, if it is too little, too late, and if the deal will indeed go through (and at the expected price). Only time will tell what the future holds for Target.

If you are among the 10 percent of holiday shoppers hitting the stores at the very last minute, keep in mind a survey done recently in the Colorado Springs area. According to that, women prefer diamond earrings above all other jewelry. Tools are still at the top of men’s gift list, while clothing is still at the top of women’s.

Of course, some will choose to defy the stereotypes. Ironically enough, I hinted at diamond earrings and got a golf putter instead. Really, it’s a selfless gift considering it will take strokes off my golf game. Whatever you settle on as you run around getting those last-minute gifts, remember to consider taking advantage of those store brand credit cards to get extra discounts on the already great prices available at the last minute. However, these usually come with higher APRs and temptation to spend more than necessary, but can bring useful perks like VIP discounts that are useful at stores you frequently visit. And remember men, with diamond earrings you can hardly go wrong.

During this, the busiest shopping time of year, it can be tempting to take advantage of discounts available from various retailers through the acceptance of a store credit card offer. Not only will you get a discount, but these retail credit cards generally have very liberal acceptance policies and can help you build or rebuild a strong credit rating.

However, it is very true that people spend more liberally with plastic. According to the Motley Fool:

Studies show that people spend more — and more stupidly — when no actual cash changes hands. We succumb to impulse buys (an estimated 59% of grocery store purchases are not planned) and even tip more at restaurants when we put the tab on plastic.

Why Apply for a Department Store Credit Card? 

The phenomenon of buying bigger now and paying more later (in interest fees) may be manifested in the form of an extra special holiday gift for someone else. It may be a little reward for yourself to celebrate the three miles you’ve walked around the mall in search of the perfect gift. It may be manifested four months down the road with a spring wardrobe overhaul that you really can’t afford. Either way, there is no immediate pain so it’s very appealing - especially when you are a member of the store’s “VIP Club” and receive notices of all the exclusive special offers and sales.

Another thing to beware of with credit cards from department stores and other retailers is the “High-Flying APRs.” Weigh the pros and cons in each individual situation such as:

• What is the APR on this card?
• Is this a store you shop frequently?
• Do you have good spending self-control?

Reasons Not to Apply For A Department Store Credit Card

Merely accepting a card to get the discount is a bad idea because it goes on your credit history regardless. The more credit cards held simultaneously, the worse off you are. At least make it worthwhile and make sure the card and all extra perks like exclusive offers will benefit you often. Otherwise, you’re better off just getting a regular credit card if you are able.

Good Reason to Get a Retail Credit Card

Again, if your credit rating is preventing you from getting a decent offer on a regular credit card, retail credit cards can be a good way to rebuild that rating. They also typically have lower credit limits, so can be a good way to test the waters of self-discipline before moving up to regular credit cards.