What to Consider When Buying Essentials During High Inflation

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With the high cost of living these days, Americans have changed their spending habits to focus on buying only what they need. While things like gas, groceries, and toiletries are considered necessary purchases, the next question becomes: what’s the best way to pay for them?

In today’s economic climate, especially now that most things are more expensive than usual, is it better to use cash, credit, or debit to fund your day-to-day needs? Here’s what the experts have to say.

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Avoid going into debt to pay for essentials

Rod Griffin, senior director of public education and advocacy for credit bureau Experian, lists the following as his one all-encompassing piece of advice: Consumers should avoid going into debt to pay for essentials.

With interest rates rising – and the expectation that they will climb even higher in the coming months – now is not a good time to go into debt to fund your day-to-day expenses. This means that if you cannot afford to pay your credit card bill at the end of its current billing cycle, you should refrain from charging more expenses until you feel better equipped to do so. .

As tempting as they may be to turn to when your money runs out, credit cards already charge notoriously high interest rates — and they’ve risen further since the Federal Reserve’s recent rate hikes.

“I wouldn’t recommend using credit to pay for day-to-day expenses if you can’t pay off the balance on time and in full each month,” Griffin says. Maintaining a balance is not only expensive, but it can also hurt your credit score if your outstanding balance to credit limit ratio, or credit utilization ratio, is high.

Bruce McClary, senior vice president of membership and communications at the National Foundation for Credit Counseling, also cautions against using a buy-it-now, pay-later-at-checkout option because it’s basically involves loans or debts, which can ultimately be costly and eat away at your credit score.

“Many are presented when you’re ready to complete your purchase and may not require credit approval,” says McClary. “These are loans that you have to repay, and they may come with interest and fees. There is also the risk that you may quickly [go] more debt than you can handle.”

Even if you make your purchase now, pay subsequent payments on time and in full, each purchase you finance this way appears as its own separate account on your credit report, which means that multiple purchases may be listed as multiple loans. short term. that everyone closes once their balances have been paid off. This, in turn, can end up reducing the average age or length of your credit history, which is another important factor in calculating your credit score.

Limit your expenses by using cash

Consumers who cannot pay their credit card balance in full or who want to avoid buy now, pay later loans may want to opt for using cash instead of everyday essentials.

“Unlike credit cards that come with higher monetary limits, most consumers carry a limited amount of money with them, which makes it easier for them to stick to their budget,” says Griffin. “Having cash on hand can help consumers limit their purchases to the essentials on their list and eliminate overspending and taking on more debt.”

Along the same lines, you can use a debit card. While you aren’t physically limited to what’s in your wallet with a debit card, you are limited to what’s in your checking account. Since the money comes out immediately, you don’t have to worry about getting too close to your credit limit or paying interest – that’s assuming you don’t have an overdraft.

Consider using a debit card that offers rewards, such as the Discover Cashback Debit Account, which offers cardholders 1% cash back on up to $3,000 in monthly debit card purchases. Those who take full advantage of these rewards can earn up to $30 in cash back per month and $360 per year.

Discover the Cashback debit account

Discover Bank is a member of the FDIC.

  • Monthly maintenance fees

  • Minimum deposit to open

  • The minimum balance

  • Awards

    1% cash back on up to $3,000 in debit card purchases each month

  • Network of free ATMs

    More than 60,000 Allpoint® and MoneyPass® ATMs

  • Reimbursement of ATM fees

  • Overdraft fees

  • Mobile check deposit

Advantages

  • Top rated mobile app
  • No minimum deposit to open an account
  • 1% cash back on up to $3,000 in debit card purchases each month
  • Opt for free overdraft protection
  • No overdraft fees

The inconvenients

  • No reimbursement for out-of-network ATM fees

In some cases, a credit card can be a useful tool

The caveat to the advice above is that if you can actually afford (and plan to) pay off your credit card balance on a monthly basis, in which case, the use of credit can be beneficial when purchasing essential goods.

With credit card rewards programs that offer cash back or points and miles with every purchase, cardholders can stretch their cash a little further, Griffin says. For example, you can use cash back credit cards to pay your bill when you redeem the rewards as statement credit.

Consider the Wells Fargo Active Cash® Card – which offers unlimited 2% cash rewards on all eligible purchases – and your cash rewards can be redeemed as statement credit, through a Wells Fargo ATM using a card Wells Fargo ATM or debit card, such as a direct deposit to a Wells Fargo savings or checking account, or as a paper check. The card with no annual fee also offers new cardholders a welcome bonus of $200 in cash rewards after spending $1,000 within the first three months of account opening.

Wells Fargo Active Cash® Card

On the Wells Fargo secure site

  • Awards

    Unlimited cash rewards of 2% on purchases

  • welcome bonus

    Earn a $200 cash rewards bonus after spending $1,000 on purchases in the first 3 months

  • Annual subscription

  • Introduction AVR

    0% intro APR for 15 months from account opening on eligible purchases and balance transfers; balance transfers made within 120 days qualify for the introductory rate

  • Regular APR

    Variable APR of 17.24%, 22.24% or 27.24% on purchases and balance transfers

  • Balance Transfer Fee

    3% introductory fee ($5 minimum) for 120 days from account opening, then up to 5% ($5 minimum)

  • Foreign transaction fees

  • Credit needed

At the end of the line

If you’re unable to pay a credit card bill in full each month, it’s best to use cash or a debit card to fund your day-to-day needs. Otherwise, using a A credit card that offers cash back or rewards points can actually help you maximize your spending in the long run.

Ultimately, it’s important to remember that every consumer is different. A payment method that might be right for your friend or family member may not be right for you. At the very least, McClary recommends having a spending plan based on your current financial situation to help you cover the basics.

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Editorial note: Any opinions, analyses, criticisms or recommendations expressed in this article are those of Select’s editorial staff only and have not been reviewed, endorsed or otherwise endorsed by any third party.

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