Why store card and catalogue debt is so costly
Store cards typically carry APR rates of 25% to 40%, making them among the most expensive forms of revolving credit available. Catalogue accounts, including buy now pay later services that charge interest after promotional periods, often have similarly high rates once the interest-free period expires. These rates are significantly higher than standard credit cards, which themselves charge 20% to 25% APR on average.
The reason store cards charge more is partly due to the higher risk profile of borrowers who use them and partly because the credit limit and approval process is typically less rigorous than mainstream credit cards. Retailers use these cards to encourage spending, and the high interest rates compensate for the lower average credit quality and smaller balances.
For borrowers who have accumulated significant store card and catalogue debt, the interest charges can be devastating. A £3,000 store card balance at 35% APR costs £1,050 per year in interest alone. Multiple store cards can quickly create a combined debt burden where the majority of monthly payments goes to interest rather than reducing the balances.
Can you include store cards in a debt consolidation mortgage?
Yes. Store cards, catalogue accounts, and buy now pay later arrangements that have accrued interest-bearing balances can all be included in a debt consolidation remortgage. From the lender's perspective, they are treated as consumer credit obligations in the same way as credit cards and personal loans.
The process is identical to consolidating any other type of debt. You remortgage your property for a higher amount than you currently owe, and the additional funds are used to clear the store card and catalogue balances. Alternatively, you can take a second charge mortgage or secured loan for the consolidation amount.
Some lenders require the store card and catalogue debts to be repaid directly from the mortgage advance rather than releasing funds to you. This ensures the debts are genuinely cleared and reduces the risk of the money being used for other purposes.
The interest savings potential
Given the extremely high interest rates on store cards, the savings from consolidation can be proportionally larger than for standard credit card debt. Consider a borrower with the following store card and catalogue debts:
- Store card A: £2,500 at 34.9% APR, minimum payment £63/month
- Store card B: £1,800 at 29.9% APR, minimum payment £45/month
- Catalogue account: £3,200 at 39.9% APR, minimum payment £96/month
Total debt: £7,500. Total monthly payments: £204. Total annual interest: approximately £2,600.
Consolidating this £7,500 into a mortgage at 5.5% APR over 15 years would cost approximately £61 per month. The annual interest on the consolidated amount would be approximately £413 in the first year, compared to £2,600 on the store cards. Monthly savings: approximately £143.
However, the total interest over 15 years at 5.5% would be approximately £3,500, compared to approximately £4,200 if the store cards were paid off over three years at their stated rates with consistent payments above the minimum. In this case, the consolidation also saves on total interest, which is not always the case with lower-rate debts.
How lenders view store card debt
Some mortgage lenders view multiple store card accounts differently from credit card debt. A borrower with five or six active store cards may be seen as more impulsive in their borrowing behaviour than someone with one or two credit cards, even if the total debt is similar. This perception can affect lender appetite, particularly among mainstream banks.
Specialist lenders tend to be more pragmatic, focusing on the total debt amount and your ability to service the consolidated mortgage rather than the specific type of credit used. A whole-of-market broker will know which lenders are most comfortable with store card consolidation and can direct your application accordingly.
Catalogue debt and buy now pay later
Catalogue debt, including accounts with companies that offer instalment plans, is treated similarly to store card debt for consolidation purposes. The balance owing is added to the total debts being consolidated, and the catalogue account is settled in full from the mortgage advance.
Buy now pay later (BNPL) debts present an evolving situation. Traditional BNPL services that do not charge interest (such as Klarna's pay-in-three product) do not appear on credit files for most lenders and may not need to be consolidated. However, interest-bearing BNPL products and those that are now being reported to credit reference agencies may affect your affordability assessment and could be included in a consolidation if they are causing financial difficulty.
Should you close the accounts afterwards?
After consolidating store card and catalogue debt into your mortgage, closing the accounts is generally advisable. Unlike credit cards, which some borrowers keep for genuine utility, store cards serve primarily to encourage spending at specific retailers. Closing them removes the temptation to accumulate the same debts again and sends a positive signal to future lenders that you have addressed the underlying issue.
Some mortgage lenders may require closure of store card accounts as a condition of the consolidation mortgage offer. Even if they do not, taking this step voluntarily demonstrates financial discipline and reduces the risk of re-accumulation.
Alternatives for smaller store card debts
If your total store card and catalogue debt is relatively small, say under £5,000, a debt consolidation mortgage may not be the most cost-effective solution. The arrangement fees, legal costs, and complexity of a remortgage may outweigh the interest savings on a smaller balance. Alternatives for smaller amounts include a 0% balance transfer credit card for debts under £3,000 to £5,000, a personal loan at a lower rate than the store cards, or a focused repayment strategy prioritising the highest-rate accounts first.
Getting advice on store card consolidation
Nesto matches you with an FCA-regulated debt consolidation broker who will assess whether consolidating your store card and catalogue debts into your mortgage is the most cost-effective approach, or whether alternative solutions would serve you better. The service is free with no obligation. Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.