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Food Finance: How to Use Credit Wisely on Everyday Purchases
By Andi Mariategui on July 13, 2010

278050_9913-(1).jpgIt may be tempting to use credit cards to buy your weekly groceries, but before you do, consider the hazards of relying too heavily on credit cards. Because of these dangers, your credit card should only be reserved for making big, infrequent purchases or in case of an emergency.

When you use a credit card you are spending money that you have borrowed from your credit card issuer, and whatever you spend, you must repay within a time set by your lender. If the money is not repaid within this time, which usually ranges from two to six weeks, your lender starts to charge interest. Assume your credit card has an annual interest rate of 20% and your monthly grocery bill is $500. If you do not repay your debt to the company on time, you will be adding 20% to the annual cost of your groceries-- in this example, you are spending $6000 annually on groceries and $1200 in interest.

By charging grocery bills and other necessities to your credit card, essentially you can become stuck in a cycle of loans and repayment where as soon as you pay last week's bill, you are charging the next one to your credit card. Owing money on items that you need and use every day, like food, utilities, and medical bills, can put you on financially dangerous and shaky ground and without many options for repayment. If you purchase a $10,000 car on credit and at some point you are unable to continue making payments, in order to pay off the loan, you can always sell the car and use that money to repay the loan. But, if you can't make credit card payments on food bills, you have no assets to sell to make the payments.

So, rather than relying on your credit card to pay for these essentials, create a budget with the income that you have. Realistically decide how much you spend on groceries weekly or monthly and set aside that amount of money so that you do not find yourself in debt.
Note: Using credit cards for everyday purchases might be a sign of financial distress. If your debt keeps growing, you may be spending more than you earn. Consider meeting with a financial counselor for assistance.
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