Credit cards can be excellent financial tools, letting you extend your purchasing power and earn cash back. If you're wondering whether you should use a credit card for everyday purchases, there are plenty of factors you should consider.
Pros and cons of using a credit card for everyday purchases
Shopping with a credit card can have its advantages and disadvantages, depending on your financial situation.
Pros of using a credit card for everyday purchases
Using your credit card for everyday purchases can bring a host of benefits, including:
- Build credit: Using your card regularly and paying it off helps you build credit, opening the door to better rates on future loans and credit cards.
- Earn rewards: Using your credit card for everyday purchases may help you earn rewards that can be redeemed for cash back, gift cards or even used towards travel. Some cards offer higher cash back rates for everyday items, like purchases at gas stations or grocery stores.
- Tracking purchases: If you're trying to keep track of your purchases and maintain a budget, checking your credit card statement may help you do so. Doing so each month is a good way to get an idea of what you're spending.
- Reduce reliance on carrying cash: When you have a card, you rarely need to stuff your wallet full of bills.
- Protections: If your credit card is lost or stolen, federal law limits cardholders' liability to $50 for unauthorized transactions. Plus, some card issuers may reimburse you for fraudulent transactions if you report the card as stolen quickly.
- Online shopping: Shopping online and paying with your credit card is a quick and convenient way to make everyday purchases.
Cons of using a credit card for everyday purchases
Now, using your credit card for your everyday shopping poses some risks, too.
- Spending more than you can afford: Not having to pay for your purchase right away can make it tempting to splurge a little bit. If you don't have enough to cover these expenses, you'll put yourself in debt and get charged interest.
- Retail purchase minimums: Some stores won't take your card (or will charge you a fee) if your purchase doesn't meet a minimum amount — usually seen with very small purchases.
- Your card may not be accepted: Some companies may not accept any credit cards as payment. Others may simply not take your specific credit card.
How to use your credit card responsibly
Follow these tips to maximize your card's potential while avoiding financial pitfalls.
- Pay off your balances in full: Don't carry a balance on your card, if possible. Pay off your full balance on time to avoid interest and late fees.
- Keep credit utilization low: The credit bureaus divide your total balance across your cards by your total limit to arrive at your credit utilization ratio. They also do this for individual cards. A low utilization ratio may help keep your credit score high.
- Budget: Create and stick to a budget within your means. This will make paying off your balance more manageable, as the balance will be predictable every month. Consider using a mobile banking app to monitor your credit card spending and make payments.
Redeem cash back for statement credits: When you redeem your cash back for statement credits, this means that the money you're getting back can be applied to your statement balance.
Alternatives to credit cards for everyday purchases
If you don't want to pay with your credit card for certain purchases, here are some alternative payment methods.
- Cash: The main advantage of physical bills is that they're taken at most places (except online).
- Debit cards: Debit cards let you draw on your checking account for purchases so you're limited to your checking account balance.
Best credit cards for everyday purchases
The best credit cards share several traits.
- Strong rewards programs: It's a good idea to find yourself a credit card that allows you to earn points on your everyday purchases. Some cards offer five percent cash back on quarterly rotating categories. Additionally, some cards have two to three percent cash back on gas station and grocery store purchases.
- Sign-up bonuses: Card issuers may offer a sign-up bonus, also known as a new cardmember bonus, if you spend a certain amount (such as $3,000) within a few months of opening the account.
- Promotional APRs: Good credit card offers often come with zero percent intro APRs for a period of time, such as 12-18 months. If the card has a promotional purchase APR, you can use it to make a large purchase and avoid interest during the introductory period. If it has a promotional balance transfer APR, you can consolidate debt onto the card to, again, save on interest while paying off your existing debt.
- Annual fee: This is a bit counterintuitive, but some of the best cards do have an annual fee. In exchange, however, cards with an annual fee may offer more perks. For example, travel cards with annual fees often come with yearly travel allowances, reimbursement for TSA Precheck® or Global Entry and airport lounge access.
Using your credit card for everyday purchases comes with a lot of great benefits, but just make sure you use it responsibly.