Americans Are Falling Deep Into Debt Traps to Buy Groceries; What Does This Imply?

With the rising inflation, it's hardly shocking that people are now getting into debt even for necessities such as groceries. Many shoppers are now complaining of this. As per reports, many families are now dipping into their savings or turning to credit cards, but now, later installment programs to cope with the current financial crisis. "The rate of price increases is slowing, but households are still paying more today for groceries than they did last year," said Kassandra Martinchek, senior research associate at the Urban Institute, via CNBC. “That might mean that folks are having to rely on liquidity sources other than their income to be able to meet their very basic needs, their food needs,” she added.

Consumers have been struggling since the pandemic ended. For some, this had become a problem since their pandemic-era aid expired. As per the research by the Urban Institute, more than 70% of all grocery transactions are through credit or debit cards. Back in 2023, the average annual percentage rates for credit cards rose to 22.8%, the highest rate on record."When that unused credit limit is there in front of you, sometimes it looks like a lifeline," said Bruce McClary, senior vice president at the National Foundation for Credit Counseling.

The research also found that grocery charges are also leading to missed payments. 33.4% of adults who used a credit card for groceries repaid the charges in full while 20% of adults paid less than the full balance but always paid the minimum payment.

Households grappling with the cost of groceries are not taking payday loans. The survey also found that more than 37% of these people who use Buy Now Pay Later options failed to repay the debt in full when the deadline arrived. There are a few steps that people who are struggling with buying groceries can take. For example, it's best to stick to using cash when it comes to buying groceries. Debtors who feel stuck in a vicious circle can try talking to a nonprofit credit counseling agency that can help with budgeting and managing the existing debt. Another great tactic is to avoid BNPL altogether.

As per Experian, the best way to avoid BNPL is by taking a few steps including setting a clear budget, avoiding BNPL for impulse Spending, and saving it for extremely urgent situations. Other steps include monitoring the spending habits and keeping track of the total balance. It's important to realize that while it's pretty convenient to use BNPL, it comes with many risks, including overspending, getting into a debt trap, and more.

On the flipside,  a research paper by The University of Tennessee, shed light on how it depends on each individual and requires a lot of planning. "The average person will likely benefit more from rewards on groceries, but each person should look at their spending to determine the right card for them," UTC Associate Professor of Marketing Stephanie Gillison said.