About one-third of adults who took out loans in the past six months used them for emergencies or to pay bills, according to a recent ScoreSense survey. As prices continue to rise for groceries, energy, and almost everything else, it’s not surprising that increasing numbers of people need extra funds to make ends meet. But it may not be wise to use credit cards and loans to pay for everyday living expenses.
Sometimes it’s necessary to rely on credit to get through a difficult period, such as a layoff. However, if you’re taking out loans simply to pay your regular bills, that’s a sign that you’re living above your means and it’s time to revisit your budget and tighten your belt. As inflation persists and you’re paying more for everything, many people are having to rein in their expenses, so you’re not alone.
If you’re still not sure whether you should use a credit card or loan to pay for day-to-day living expenses, consider the following criteria:
When to Avoid Using Credit for Living Expenses
- You overspend when you use credit. When you’re using funds from a loan or a credit card rather than cash, it may be tempting to spend over your budget. For example, do you find that your grocery bill is higher when you’re paying with credit because you fill your cart with extra items that aren’t on your shopping list? If so, it may be best for you to stick with cash.
- You can’t make on-time payments. If you’re using credit to pay bills and fund your day-to-day living expenses, making payments on time is crucial. The most important factor in your credit score is your payment history, a measure of how well you’ve paid bills on time over a matter of months and years. If you’re not able to repay your loan or credit card bill on a timely basis, you’re likely to dig yourself into a hole of debt and your credit score may be affected.
- You plan to carry a balance. Are you using credit to pay for living expenses because you can’t afford your lifestyle? If you’re carrying a balance from month to month—and it continues to grow—you probably need to start paying cash for your day-to-day expenses. Rather than continuing to dig deeper into debt, look for ways to cut your monthly expenses so that you can afford them.
When to Use Credit for Living Expenses
- You are paying only for items you can afford. If you have the self-discipline to purchase only the items that are within your budget, using credit to pay for your living expenses is probably ok. Even though you’re not paying with cash, you must understand that you will eventually have to pay with cash by paying off the loan or credit card.
- You need extra time to pay bills each month. Some people earn enough money to cover all their living expenses in cash each month, but they need until the end of the month to pay for them. In this case, it may be smart to use a credit card to cover your expenses as they arrive, but pay it off each month to avoid paying interest.
- You want to maximize credit card rewards. Maybe you’re committed to keeping your expenses within budget, but you want to earn credit card rewards. In that case, using a credit card to pay for your day-to-day expenses and paying it off each month can be a smart strategy.
Learn more about how your spending affects your credit score and your ability to use credit by monitoring your credit reports from all three bureaus. If you’re not a member, try tracking your scores with ScoreSense, you can start with a 7-day trial membership.