Credit cards at discount retail stores

Week after week bargain hunters flock to these stores in search of low prices on everything from linens to laundry detergent to shampoo.

And now discount retailers such as Kmart, Wal-Mart and Target have joined the credit card game. Are these credit cards worth your while?

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They can be, but be careful. The best credit card deal can change to a pricey one before you know it. With Kmart and Wal-Mart cards, the perks are as nice as the penalties are severe. Shopping with a Target Guest Card may help raise money for a local school, but it comes with an eye-popping 21 percent interest rate.

"The bottom line is credit card companies are in business to make money," says Susan Bierly Craig, vice president at Springboard Non-Profit Consumer Credit Management in Riverside, Calif. "That's something that consumers need to keep in mind."

The Kmart card
With a Kmart MasterCard, launched in September, cardholders pay no interest for the first six months on purchases made at Kmart stores and at Bluelight.com, Kmart's online subsidiary.

"If they charge small reasonable amounts and paid it off in those six months that could be a real benefit," Bierly Craig says.

For non-Kmart purchases, cardholders pay a fixed interest rate of 11.9 percent. After the six-month introductory period ends, cardholders will pay 11.9 percent interest on Kmart purchases as well.

The low rate for purchases won't last if a customer slips up on a couple of payments. If your payment is tagged as late twice in any six-month period, your interest rate gets hiked to 25.9 percent. Every late pay also brings a $25 late fee. One day past the due date counts as late, so it's wise to mail your payments early.

You'll also pay a steep price for failing or forgetting to pay a bill. A 25.9 percent interest rate will be assessed to any Kmart MasterCard account that is more than 30 days past due.

"For those who can't pay -- someone who's laid off work -- that's a stiff penalty," Bierly Craig says.

The Wal-Mart card
The Wal-Mart MasterCard, issued by Chase Manhattan, can also be a good deal if you maintain a perfect payment record.

Cardholders enjoy 9.9 percent fixed annual percentage rates on balances transferred onto the card within the first nine months. The 9.9 percent rate on balance transfers lasts until the balances are paid off.

Other perks include online account access, free photo cards and free additional cards for family members. The APR for purchases on a Wal-Mart MasterCard vary based on a cardholder's credit history. The interest rates on purchases range from 13.48 percent to 21.48 percent.

Make a mistake with a Wal-Mart MasterCard, and you'll pay quite a price. Exceed your credit limit or fail to make a minimum payment on your Wal-Mart MasterCard or any credit account and you could see the interest rate on your account jacked up to as much as 24.49 percent. Late fees and over-the-limit fees cost $29.

"If you're late that's the end of the low rate," Bierly Craig says. "People really need to read the fine print and understand what the terms and conditions are."

Wal-Mart's store card, which can only be used for Wal-Mart purchases, has a similar pricing scheme. Interest rates range from 13.74 percent to 21.74 percent. A delinquency rate of 26 percent kicks in if a cardholder pays late twice in any six-month period.

The Target card
Another card that requires a lot of discipline is the Guest Card from Target. The credit card, which can only be used to make Target purchases, comes with a steep 21 percent interest rate. It's best to pay off this bill every month.

The Guest Card donates 1 percent of all purchases made on the card to a K-12 school of the cardholder's choice. This program has generated more than $27 million for more than 104,000 schools across the country. Other perks include a 10-percent discount on an in-store purchase and a 10-percent discount on an online purchase made through the Target's Web site.

A Guest Card from Target could be a nice choice for someone who is able to pay off the balance and every month. People who can't would be better off shopping at Target with a lower rate card.

"Obviously the most important thing for consumers is to look at the cost to them," Suzanne Boas, president of Consumer Credit Counseling Service of Atlanta. "If you're paying your balance in full and paying on time then you can choose from various incentive programs."

Avoid signing up for store credit cards on the spot. "Instant credit encourages instant decision-making," Boas says. "We like to encourage people to do some good comparison shopping."

Take home a credit application and study it. How does it compare to offers from other stores and the other cards in your wallet? Do you really need another credit card and another bill to remember to pay each month? Remember the whole point of a retail credit card program is to get you to spend more money while you're at the store.

"Merchants know that people that have cards in their wallets and charge are going to spend more than those who pay by cash or check," Boas says. "It's a lot harder to peel three $20 bills out of your wallet than to hand over a charge card."

Before signing on for a retail credit card, it's important to be realistic about how much you're likely to spend and your ability to pay. Late fees and high interest rates could wipe away any of the money that you "saved" shopping at a great sale.

"Look yourself in the mirror and be really honest about how disciplined you are," says Boas. "Because when you look at some of these terms, they can be very expensive if you're not a disciplined person."

As convenient as it is to pay with plastic, it's important to stay within a budget. Lingering balances at high interest rates can really drain your finances.

"Be careful. Really know what your budget will allow," Bierly-Craig says. "Whether it's Wal-Mart, Kmart or Target, they've got to know what they're spending. People know to the penny what their paycheck is, but most people really don't know what they're spending."