Yahoo Finance I’m a Financial Planner: 5 Things To Consider Before Buying Groceries With Your Credit Card
Using a credit card to buy groceries has its pros and cons. Credit cards are convenient, more secure in some ways than cash or debit, and may even earn you rewards. But they can also be extremely expensive.
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The Consumer Financial Protection Bureau (CFPB) found that the average annual percentage rate (APR) on a credit card was 22.8% last year — nearly twice what it was a decade prior. Credit card companies earn billions of dollars a year on interest charges alone, not to mention other fees.
If you’re thinking about buying groceries with your credit card, do so with a plan in mind. That way, you can get the most benefits with the least amount of hassle or fees.
GOBankingRates spoke with two financial planners — Josh Richner, founder and senior debt advisor at FaithWorks Financial, and Taylor Kovar, CFP and CEO at 11 Financial — about the top things to consider when using your credit card to buy groceries. Here’s what they said.
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Your Financial Health
If you’re using your credit card because you want to get those rewards and you know you can pay off your monthly balance, then by all means. But if you use it because you’re struggling financially, that could be a sign of a bigger problem.
“If you find yourself regularly using a credit card to buy groceries out of necessity, it’s a sign that you may be overextended financially,” said Richner. “This situation demands a closer look at your overall financial health to identify and address underlying issues.”
Review your monthly bank statements, credit card statements, loan payments, and any other regular expenses you have. Then, make a budget — either manually or via a free budgeting app — based on your income and expenses. If you’re having trouble financially, look for any areas where you can cut costs and put that money toward your groceries (or credit card bill) instead.
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Your Ability To Pay It Off
Right up there with considering your financial health is making sure you can handle your credit card payments. This means more than just paying the minimums — it means paying off your balance in full each month.
“Paying off the full balance avoids incurring interest from month to month,” said Kovar. “Be cautious of carrying a balance that can lead to interest charges [and] outweigh the potential benefits.”
“Groceries are a recurring expense, and if you are not able to pay off your credit card balance in full each month, the interest and fees can quickly add up,” Richner added. “This makes your groceries significantly more expensive over time.”
Check your card’s interest rate and any other fees. While you’re at it, find out when your card actually accrues interest. This doesn’t always happen on the payment due date, so you could end up paying interest even if you do make the full payment.
Food Quality and Quantity
Having a convenient payment method can be a double-edged sword when it comes to food quality, too. If you’re running your card at places like convenience stores or buying unhealthy snacks just because you can, you could be hurting your overall health. This can also happen if you’re purchasing these foods because they’re the only thing you can afford.
“When debt and debt repayment cause us to sacrifice the quantity or quality of our food choices, it is directly impeding our physical health,” said Richner. “Ensuring you have access to nutritious food is crucial for maintaining overall well-being.”
Take a good look at the foods you’re actually purchasing and make sure they work with whatever personal health and wellness — and financial — goals you have. Regardless of how you pay for them, it might be time for a change if they don’t.
Rewards and Other Perks
“People should also consider the rewards and benefits accompanied by grocery purchases that their cards may offer,” said Kovar. “Some credit cards offer benefits such as rewards or possible cash back with grocery purchases that can add up to savings.”
Many major credit cards also come with perks ranging from fraud protection, which can keep your money and identity safe, to travel points. Having these perks can be great, but you’ll still want to consider the benefits alongside the potential risks or costs.
In particular, Kovar advised against carrying a balance since the interest charges can eat into any possible savings or cashback rewards you might get.
Your Credit
Your credit score has a big impact on your credit card limit and interest rate, as well as the types of cards — like rewards cards — you qualify for. But your credit card usage also affects your credit score.
Your FICO credit score consists of five main categories — amounts owed, new credit, payment history, length of credit history, and credit mix. From this, 35% of your score is based on your payment history. This means you could build credit if you can reliably make those on-time payments.
Another 30% of your score is based on your credit utilization (amounts owed). If you consistently carry a high balance on your card, you could be hurting your score rather than building it up.
“Using credit cards responsibly with any expenses can help maintain a healthy credit score, and avoid unnecessary interest charges,” said Kovar.
This applies not only to your grocery purchases, but to any other expense you charge to your card.
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This article originally appeared on GOBankingRates.com: I’m a Financial Planner: 5 Things To Consider Before Buying Groceries With Your Credit Card
