If you want to wade into a heated financial debate, just bring up the subject of credit cards.
While some people swear by their convenience, others believe credit cards have no place in a savvy shopper’s wallet. For super savers, such as SavingsAngel members, a rewards credit card can lead to extra savings at the grocery store – if you can avoid the pitfalls associated with plastic.
The pros of rewards credit cards
The benefit of using a credit card to buy groceries is simple. Pick the right card and you can save hundreds of dollars each year.
Although some rewards credit cards offer points that can be redeemed for merchandise, travel or gift cards, cash back cards may be the better deal for shoppers who want to earn a rebate on their purchases.
According to Consumer Reports, the best cash back rewards card, as of November 2012, was the American Express Blue Cash Preferred. The card offers 6 percent cash back on up to $6,000 worth of supermarket purchases each year. If you happen to spend that much on groceries, that equals out $360 cash back for the year.
Other cash back credit cards listed on the comparison site CardRatings.com include the Blue Cash Everyday Card from American Express which offers 3 percent cash back on supermarket purchases and the Disney Premier Visa Card which gives 2 percent in rewards dollars for grocery purchases.
Please note credit card reward programs can change without notice so before selecting a card, be sure to double check the fine print.
The cons of rewards credit cards
There are two negatives associated with using credit cards to pay for groceries. The first is the risk of spending more than you intend, and the second can be summed up in one word: debt.
It’s a popular argument made by financial gurus such as Dave Ramsey: using a debit or credit card can cause you to overspend your budget by 12-18 percent. While the source for these numbers is a bit sketchy, it isn’t hard to see how you can easily spend more when paying with plastic. When you know you aren’t limited to the cash in your pocket, it seems that much easier to slip a couple extra items in the cart.
The second pitfall associated with credit card use is the risk of running up a pile of debt. When you leave your grocery money sitting in the bank all month, there’s a chance you’ll spend it on something else and not have the cash to pay off your balance when the credit card statement arrives. Once you start to carry a balance on your card, the interest you pay will likely outweigh any rewards you might earn.
The bottom line on cash back credit cards
So what’s the verdict? Are rewards credit cards a good option for savvy shoppers?
Well, that depends. If you’re already up to your eyeballs in credit card debt, I would say the answer is a resounding no. If you can’t pay off your balance in full each month, it doesn’t make financial sense to charge your groceries.
However, if you have a good handle on your finances and are self-disciplined, using a rewards credit card may be one more way to save money on your grocery budget. You may not save a mind-blowing amount, but just as all those little coupons add up, so too can cash back rewards.
If you aren’t sure where you stand, try taking a rewards card for a test run. Put the cash for your grocery budget in your savings account and use a card for a month. Pay close attention to whether you find yourself going over your budget or if extra impulse buys are jumping in your cart.
Then, when the statement comes at the end of the month, pull the money out of your savings account and pay off the balance. If the money has been chipped away by other expenses throughout the month or your statement is for more than what you have the bank, then you have your answer. Skip the credit card and stick with a cash system instead.
Remember that cash back credit cards should work to help you meet your financial goals. If they don’t, then it is time to kick them to the curb.