Is a credit card best for back-to-school shopping?

With the rising cost of living, Canadian parents may have to prepare for higher back-to-school bills.

When weighing payment options for annual school supplies, it’s hard to resist the convenience and potential benefits of a credit card.

But is plastic good for your family’s finances? Let’s break down the pros and cons of using your credit card to pay for school expenses and the alternatives you should consider.

Canadians prepare for higher back-to-school costs

About nine in 10 Canadian parents of children in kindergarten and college (92%) will make back-to-school purchases this year. Nearly half of them (47%) expect to spend $500 or more on those purchases, compared to just 34% in 2023, according to a NerdWallet survey conducted by The Harris Poll of 1,014 Canadian adults from July 15-17, 2024. Of those, 296 are parents of children in kindergarten and college.

“I expect to spend probably $300 on clothing alone,” said Tanya Hayles, a 45-year-old digital strategy manager from Toronto, in an audio message. She will be doing back-to-school shopping for her son, who is entering seventh grade. “I would say in total it will probably be about $500.”

But it’s not just about how much Canadian parents want to spend on school supplies and electronics, it’s also about how they plan to foot the bill. This year, plastic reigns supreme.

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Most parents resort to credit cards to make ends meet

Sixty-five percent of 2024 back-to-school shoppers intend to pay for their purchases with a credit card. Other payment methods are less popular: 47 percent of back-to-school shoppers plan to use a debit card, 24 percent will use cash they have at home, and 14 percent plan to withdraw money from a savings account.

Credit cards are convenient, but they are not without risk. Paying with plastic cards may provide short-term financial relief, but the bill could hurt later.

Advantages and pitfalls of a credit card that you should be aware of

Advantages

• Earn rewards. With a credit card that earns rewards—whether points, miles or cash back—you can claim back some of the value of your eligible spending.
• Building your credit history. Credit card transactions are reported to credit bureaus and contribute to your credit history. Using credit responsibly can help improve your credit score over time.
• Purchase protection. If your new laptop malfunctions or the three-figure price backpack falls apart after the manufacturer’s standard warranty expires, a credit card’s purchase protection and extended warranty terms can save you a lot of money.

Pitfalls

• The temptation to spend too much. When you buy things on credit, you delay the pain of spending and can make it easier to throw unnecessary things into your shopping cart.
• High interest costs. If you don’t pay off your credit card balance in full, you’ll be charged interest, which can quickly turn your back-to-school bargains into a budget-busting disaster.
• debt spiral. Even with a well-intentioned plan to pay off your balance, your back-to-school purchase debt can linger into subsequent months, accruing additional interest and putting a strain on your finances.
• Impact on creditworthiness. The longer an outstanding balance remains on your credit card, the more it will impact your credit utilization ratio, which in turn can affect your credit score.

Payment alternatives for back-to-school shopping

If credit cards aren’t enough for your back-to-school shopping strategy, consider these other payment options.

Checkout

Using cash as a means of payment can help you stick to your budget because once the money is used up, your shopping spree is also used up.

Debit cards

A debit card offers the same convenience as a credit card, but without the risk of interest charges because you are not borrowing money – your spending is entirely up to you.

“I’m definitely going to try and move more to debit,” Hayles said. “Unless I can avoid it, I’ll try to move as much to debit as possible.”

By using existing payment methods, debit card shoppers can stick to their budget without sacrificing the convenience of card payments.

Buy now, pay later (BNPL) services

A buy now, pay later program offers consumers the opportunity to break purchases into smaller, bite-sized payments over a set period of time. Be careful, though, and read the fine print, as late payments may incur fees or penalties.

Conclusion

There’s nothing wrong with whipping out your credit card to pay for a planned expense, just be sure to educate yourself on the pros and cons of borrowing money tomorrow so you can make an informed decision when using plastic cards for back-to-school purchases.

Survey methodology

This poll was conducted online by The Harris Poll on behalf of NerdWallet from July 15-17, 2024, among 1,014 Canadian adults ages 18 and older, including 296 parents of children in elementary/high school. The sampling accuracy of the Harris online polls is measured using a Bayesian credibility interval. For this study, the sample data are accurate to within +/- 3.8 percentage points at the 95% confidence level. This credibility interval will be wider for subsets of the population of interest being studied. For full survey methodology, including weighting variables and subgroup sample sizes, please contact Bria Weaver (email protected).