What are 5 things to consider before buying groceries with my credit card?

Ralph
00:00:00

Are you standing at the grocery checkout wondering if you should swipe that credit card? Have you ever found yourself paying $7 for a gallon of milk that you bought three months ago because of credit card interest? Well today, I'm going to share 5 crucial things you need to consider before using that credit card for groceries, plus I'm going to share some game changing strategies to make those credit card perks work for you, not against you.

Narrator
00:00:25

Welcome to the Ask Ralph Podcast where listening to an experienced financial professional with over 30 years of experience can help you make sense of confusing questions, current headlines and industry trends about taxes, small business, financial decision making, investment strategies, and even the art of proper budgeting. Ask Ralph makes the complex simple by sharing his real world knowledge from a Christian perspective with all things financial.

Now here's your Host, Ralph Estep Jr.

Ralph
00:00:54

Thank you for joining me today. I appreciate you listening, and I also honor the trust you've placed in me. Now, if you missed yesterday's show, we had a discussion about Christian unity. I explored how working together as believers strengthens our faith and also our financial journey. If you missed it, I'm going to encourage you to go check it out.

Today's listener question comes from Beverly, and she writes this, "Dear Ralph, I'm struggling with grocery expenses. Every month, I put them on my credit card, thinking I'll pay it off, but somehow, I keep carrying a balance. I know there are rewards for using credit cards, but I feel trapped in a cycle. How can I make better decisions about using credit cards for groceries?"

Well, that is a great question Beverly, and I'm going to give you a great answer today hopefully. If you've got a question like Beverly, one of the things I would encourage you to do is to join our live show. Every Tuesday night, I go live at 7:00 PM eastern time. You can get to that by going to askralphpodcast.com/live. And if you need a bigger incentive, every week, I'm giving away a hundred-dollar Amazon gift card to a lucky listener. So again, I encourage you to join us every Tuesday night at 7:00 PM Eastern time. Come get your questions answered and enter that drawing for that hundred-dollar Amazon gift card. Again, that's askralphpodcast.com/live.

You know Beverly, your situation is exactly what the Bible speaks about. And I use this verse often when I talk about credit cards and debt. And it comes from Proverbs 22:7, and it perfectly addresses our topic today. And this is what the Bible says. The Bible says, "The rich rule over the poor, and the borrower is slave to the lender." Like I said, I use that a lot but it's so important that we handle that, and we think about, and we ruminate on that discussion today.

According to research, managing credit card debt has become a significant challenge for many Americans. And if you're like me, I've been through those cycles. Well, let me share some eye-opening statistics that show why making wise decisions about credit card usage, especially for everyday purchases like groceries.

That's what we're talking about today. Why, you know, understanding and making wise decisions is so crucial. Let me throw some statistics at you and some of these will rock your world. 50% of credit card holders say they carry a balance from month to month. So in other words, they're not paying that credit card off every month. 50% are rolling that balance forward. Now, I'll put a link to the show notes to talk all about where I got these statistics, but this is basically Bankrate's credit card debt survey. So 50% of credit card holders say they're carrying a balance month to month. Here's another shocking statistic. 36% of U.S. Adults have more credit card debt than emergency savings. That's according to Bankrate's 2024 Emergency Savings Report.

So think about that for a second. 36% of U.S. Adults have more credit card debt than emergency savings. So they're not people who aren't saving for an emergency. That's a sobering statistic. Here's another one. 47% of U.S. Adults who say money negatively affects their mental health, at least occasionally, and the reason it is they say citing being in debt as a reason. And that's according to Bankrate's Money and Mental Health Service.

So think about that for a second. 47% of U.S. Adults who say money negatively impacts their mental health cite being in debt as the reason for that. Here's another statistic. 38% of U.S. Adults are willing to go into debt for discretionary purchases this year. That's according to Bankrate's discretionary spending survey.

So 38% of U.S. Adults are willing to go into debt for those purchases that are discretionary in nature. And 67% of Americans with credit card debt still make an effort to maximize credit card rewards. Now that's another thing. That's a nice thing. So 67% of Americans with credit card debt are making efforts to maximize their credit cards, which we'll talk about a little later.

Are they actually accomplishing that? And 60% of us adults with credit card balances have had that balance for at least a year. And that's some scary things. Think about that. So 60% of U.S. Adults with credit card balances have had that balance for at least a year. They've been carrying that balance for a year. And see these statistics reinforce why it's crucial to develop a solid strategy for credit card usage.

That's what this show is all about today, especially if you're going to use it for regular expenses like groceries. Well, let me start by sharing 5 crucial considerations before using your credit card for groceries. And I'm going to share some stories that I think will help you understand these matters in more detail of people I've actually worked with over the years. The first one I'll call the emergency fund factor.

So I work with this guy. His name was Barry. He's a schoolteacher. I worked with him last year. Now he was using his credit card for buying groceries. He shared with me. Ralph, he said, the reason I'm doing that as my checking account has been running low. He thought he was being smart. You know, he was getting 3% cashback on groceries. He said, Ralph, you know, this is a great thing.

I'm getting 3% cashback. But then all of a sudden something bad happened. Like all of us go through this sometimes. His transmission failed. Went to the repair shop and they told me it will be $2,000. And unfortunately, Barry had no emergency fund. So we had to put it on that credit card. Which meant he couldn't pay off his monthly balanced. So think about it.

The trickle down of this, the domino effect is his $200 worth of groceries that he put on his credit card now cost him nearly $300 because of the added interest charges. So you might be saying, Ralph, how do I prevent that? Well, I've got a solution for you. And if you listen to the show, you know, I talk about this all the time and the key is to build an emergency fund. And listen, with Barry, you don't have to be big about this. Even if you just set aside a hundred dollars from every paycheck and then you don't have to rely on that credit card for basic needs. And remember this, without an emergency fund even the best credit card rewards can't protect you from life's unexpected expenses.

Barry had no idea that his transmission was going to die. It just happens. And that's why you got to have that emergency fund. So that's the first thing, like I said, that is our emergency fund factor. Well, let's look at number two. And that one is the budget reality check. Let me tell you about Jessica.

Now, this one really opened my eyes to tracking all your expenses. Now, Jessica is one of my small business clients. And Jessica was great with swiping her card. She could swipe it everywhere. She would do it without even thinking. She came in to me for help and we analyzed her spending, and one of the things I do with most of my clients, or pretty much all of my clients when they're coming in for that kind of financial counseling, we look at each and every dollar that's going out the door. And when she did this tracking, I told her to go on for the next 30 days, keep track of every single dollar you spend, she came in to meet with me. She said, Ralph, I was shocked. I was spending $800 per month on groceries and that was just for her and her husband. It was just the two of them. And what she did was she fell into a common trap a lot of us do, and I've done it myself. You've probably done it yourself. You go to the grocery store, I just need to pick up a few things. And she didn't have a plan of this thing. So these just a few things would add up.

Maybe she would go to the grocery two or three times a week and it just continued to add up. So one of the things I do with her, we created what's called a category based budget plan. We looked at each of the categories where she needs to spend their money. And then she started using a mobile app to really measure those things in real time. And here's the big takeaway from what I do with her. We've set up a plan and before she even steps into the store, she's already figured out what she's going to buy, and she knows how much she's going to spend. She's got a budget. And what was the results? Well, guess what? She cut her grocery bill by almost 50%. It's a $400 a month reduction. So again, I call this one, the budget reality check. You've got to measure it.

You've got to plan for it. And don't fall into that trap of just picking up a few things, because we've all been there and it's easy to grab a bunch of more things when you're in the store. Well, let's look at another one. And this one's the credit utilization impact. I'm going to tell you about my client Michael, and this is a situation I see all the time.

Now Michael was a recent college graduate. He had a credit card; he's just starting out in life and had a $2,000 credit card limit. Well, here's the problem for Michael. He was using about $1,600 of that per month for his expenses. And he said to me, Ralph, he said, I thought I was building great credit, but I kept seeing my credit score going down. And what he didn't realize is think about this for a second. He was using 80% of his credit limit. And if you've listened to the show, you know, I try to keep everybody's credit utilization below 30%. So in his case, he was paying it off every month, but it was hitting that 80% limit and was hurting his credit score. So, yeah, realistically on a $2,000 credit card, you should never have it with a balance of more than $600. So you might ask Ralph, what did you do?

Well, here's the thing we did with him. We split his cost between the first and the middle of the month. And then what he does is he makes a credit card payment weekly. So he still gets those rewards. He still gets the value of using that credit card, but his utilization never goes above 30%. And after six months, guess what?

He had gotten an 85-point increase in his credit score. Just with that little change. He's spending the same money, it's just the, it's the strategy of how we are doing it. So again, I called that one the credit utilization impact. And if you don't listen to anything else I say today. Keep your credit card balances below 30% of your limit.

That is really the key to it. Let's look at the next one. That's what I called the payment strategy. So here's Linda. She's a single mom. She got three growing children. Now Linda was doing a thing that a lot of us do, and she was just making those minimum payments on credit cards. I did a show about this a couple of weeks ago. She came in and sat down.

She said, Ralph, I'm really struggling. She needed some financial counseling. And we sat down, and we looked at her credit card statements, and to be honest with you, Linda had no idea what was really going on. And I sat, I looked at those, we looked at them together and all of a sudden, I said, do you realize you're paying $50 a month in interest on your groceries alone? She said, Ralph, I had no idea about that.

She goes, I'm just making the minimum payments, so I keep my credit score good and all this sort of thing, but I'm like, Linda, what you don't get is you are driving yourself deeper in debt and everything is costing you more because your credit card interest rate is 22.9%. So what did I do for Linda?

We created a clear payment strategy. Again, we went to that tracking. She tracks each and every expense. She sets spending limits for each category. So she knows how much she can spend for food, how much he can spend for utilities and all that sort of thing. And the big takeaway from her was we ensure she has enough money at the end of the month to pay off that credit card balance completely. Now a little trick we did,

I'm going to add this one in here cause I've talked about this in other shows as well. I asked Linda to add what I call the 24-hour rule for non-grocery purchases. And basically it works like this. For anything that you're going to spend more than $50 on, you'll wait 24 hours to see if you really need it. And what you're going to find is oftentimes, once you get past that, because here's the thing. You're in the store, you see something you're like, oh, I could really use that.

That is fantastic. And you don't have much time to think about it. And that's why stores are effective in doing this. The way retail works. But if you say, you know what, I've got a rule. If it's $50 or more, I don't buy it until I wait 24 hours. Kind of a cool off period. And when we did this with Linda, it saved her hundreds in interest. And all of a sudden, she said to me Ralph, she said, I'm making better choices because I'm using that 24 hour rule.

So try that out today. You might find it works great for you. I may even try to revisit that myself. So that was the payment strategy. The next one is what I'll call the rewards reality. And this is number five. Now David was a church administrator. He came to me excited. He said, Ralph, I will tell you, I am in love with my credit card.

I get 2% cashback on everything I do. And he said, Ralph, he said, guess what? On most months, I'm earning $20 a month in rewards. And I said, David, that's fantastic. I said, let me see your statements. And I got the statement and said, but here's the problem you're not following David. Yeah, you're earning $20 a month in rewards, but you're paying $90 in interest. He said Ralph, I never considered it that way.

I said, yeah, you're going forward 20 and you're falling back 90. So your net effect is you're going in worst $70 every month. So with David, we developed a plan. Now with David, we needed to be more structured. So we only use his credit card for plan purchases. And we only use it for things he can pay off immediately. Kind of like a debit card but not using the debit card.

He always has the money in his bank account. And generally every Friday, he transfers whatever's on his credit card over to that credit card from his bank account, so he never carries a balance. Another thing we do with David, we created a detailed grocery list, and this is the thing. Listen to me. A lot of times, if you'll just create that detail grocery list, plan your meals out ahead of time, you know, a lot of people talk about take Sunday afternoon and plan out your week, plan out your spending for the week, plan out your meals and do your grocery shopping based on that. And then stick to that list and trust me, it's hard when you're in that grocery store and you see things coming at you from all directions and you're like, well, yeah, that would really be good.

Oh, I could use this. I could use that. And then you get out of the store, and you realize that you're 50% over budget. Another thing you consider here is using that envelope budgeting for discretionary spending. I think that's a great thing to consider here. So in the end with David, here's what we're able to do.

David was able to get the rewards, but pays no interest. And another thing that David started to do is he started to monitor his credit routinely. And that's a big one too. And my big takeaway here is this. Remember, using credit cards for groceries isn't inherently wrong. It's just not. It's about having the right system in place and managing this. You know, like for me, I get you to share personal strategy with me.

Now, my wife handles most of the grocery shopping for us. But we keep a grocery list. We have a budgeting app. We check our account balance before shopping, and we have automatic payments set up three days before the credit card bill is due. So we never get into that place where we're paying those late charges.

My wife is great for paying off that credit card at the end of each month. She never rolls that balance forward. And so that's the thing I would encourage you to implement today. Have a system in place, have a plan in place. Worked to never pay that interest, but still get the benefit of those rewards and you get the benefit of fraud detection and all that sort of thing.

But don't just go into it with I'm just going to get the rewards and not look at the backside of that, how much you're paying in interest. And I'm going to share some key action step for you in a few minutes, but first I want to ask you this. Are you losing sleep wondering how you afford everything on your holiday list this year? It's getting to be that time. Are you tired of starting every new year, buried under a mountain of holiday debt? Do you want to create those magical Christmas memories without the financial stress that usually comes with them? You don't want those big credit card balances in January and February. Well, I'm going to encourage you to discover peace of mind with my free surviving the holidays without going broke guide. So I'm going to put together just for my listeners. And in that guide, you'll learn how a proven budget system that can actually work to save you from going into debt over the holidays. I'm going to tell you about some smart shopping strategies a slasher costs.

I'm going to give you ways to create magical memories without maxing out credit cards. In fact, I'm going to tell you about things that don't cost a dime, but we'll give you a much better holiday. I'm also going to share with you some tips for teaching kids gratitude in this gimme world. We're surrounded by these kids.

Gimme, gimme, gimme, gimme. And last but not least. I'm going to explain to you how to keep faith and family at the center of your celebration. Listen. Don't let January's credit card bill steal your holiday joy. Download that free guide. Now you do that by going to askralphpodcast.com/christmas. And make this the most meaningful and dare I say, affordable holiday season yet. Again, that's askralphpodcast.com/christmas. Your stress-free holiday season starts right now. Well now let me share some steps that you can take right now to help you manage your credit cards wisely. And I'm talking to this specifically today about groceries.

First thing. Create a dedicated grocery budget. You know, sit down and plan that out. Even so much as the components within the grocery store. How much are you going to spend on perishables? How much are you going to spend for meats? How much are you going to spend for other things? Because what you might find is it's convenient to go to the grocery store to buy all those things, but they might be cheaper if you buy them somewhere else or go to one of these you know, Sam's clubs or Costco and go buy those things there in bulk.

Another thing, number two on my list, and this is true of any time you spend money, and everybody spends money. So this is what we should all be doing. And that's track every purchase meticulously. You need to know where your money is going. I always say this. What gets measured gets done. And one of the big aha moments that I see with a lot of people I work with is they have no concept of where their money is going.

And when they sit down for 30 days and they write down everything they spent, they go, wow. I never realized I spent so much money. Do the same thing with your groceries. Get that receipt when they say, do you want your receipt? Yes. I want that receipt. Take that receipt home and analyze it. How much did you spend on this?

How much were those? Just grab me off the shelf purchases that you have really didn't need. Number three, this one is crucial. Set up automatic payments for your credit cards to avoid late fees. This is one thing you can definitely do. Now I'm making an assumption you've got the money in your checking account to pay it but set up those automatic payments because you might be doing all of this for those rewards.

Well, if you get nailed with a $35 late fee, you just lost all the rewards you gained probably in six months or a year. Number four, as we talked about. Keep that credit utilization low. Aim for that to be less than 30%. Really work at doing that. You know, if you've got us pay your card more frequently or all those sorts of things, understand what that's looking like so that you keep that ratio below 30%. And number five. And I want to stress this.

A lot of people don't do this. Review your credit report regularly pay attention to what's on your report. Understand what's going on because if you don't know, then you need to go buy a car or maybe you want to get a new credit card or something else, and then you've got the surprise, surprise moment.

When you didn't realize something's been on your credit report for six or 12 months. Now tomorrow I'm going to discuss an urgent topic. And this one is this. I said, I've been scammed online. What are 5 things I should do immediately? Listen, if you're one of the victims of being scanned online tomorrow, I'm going to give you five things you should do immediately.

So you don't want to miss those crucial steps to protect yourself. Remember this. My passion is to help you achieve financial success. I want to see you live out your dreams. I want to see you grow in your faith. That's why I do what I do. That's what the ask Ralph show is all about. Helping you achieve financial success. Live out your dreams and grow in your faith.

And I know working together. If you listen, contact me. I get that guide I talked about today. Working together, we can master your finances from that Christian perspective. And that's the goal. So as you go about your day today, do me a favor and stay financially savvy and God bless you.

Narrator
00:20:32

Thank you for joining us on the Ask Ralph podcast, and with a simple click to subscribe, we'll invite you back to our next episode. And remember, financial issues don't have to be complicated, just Ask Ralph.

The information contained in this episode of Ask Ralph is based on data available as of the date of its release.

Saggio Accounting plus and Ask Ralph Media, Inc. Is under no obligation to update this content if changes occur.

Applying this information to your specific situation requires careful consideration of all facts and circumstances, and any information provided is not to be considered as financial, tax, or legal advice. Please consult your tax advisor or attorney before acting on any material covered.