How Much Is Too Much Plastic?
Saturday, November 22nd, 2008
Most people have found themselves to be the target of incessant promotional campaigns from credit cards companies. Promises of pre-approvals and high credit limits or great rewards programs are sometimes hard to resist. Without even realizing it, many people end up with several credit cards floating around in the wallets, whether they use them or not.
Astonishingly, it is estimated that on average most people cart around between 5 and 10 credit cards and it is not that uncommon to find those with upwards of 50 different accounts. This startling amount of credit cards just begs the question – how much is too much?
Personal Decisions
While there is no right answer to that specific question, it is important to take some things into consideration and be able to answer that question based on your own personal financial situation and goals. What works for some will not always work across the board and people need to operate within their own financial means, or risk getting heavily involved in debt and bad credit. The better question is how much are you spending and what is it doing to your credit.
If you have 30 credit cards that each carry a balance you can barely pay, it is likely you are headed for financial disaster. But for those who carry low or no balances on their 30 credit cards, there still may be a damaging affect on your credit score. The credit companies and lenders may see your high lines of credit as a risk for potential debt damage, even if you have always been consistent with payments in the past.
Analyze Your Situation
If the reason you have 30 credit cards is because you just never took the time to sit down and see what is going on, you aren’t using your money management skills wisely. It may be high time you gathered all of your credit card statements and sat down at the table to take a good look at the money your are spending and the money you are wasting on finance fees, annual membership fees, and other charges that are essentially unnecessary. As the economy has been on a downslide recently, credit card companies have tightened the reigns on their credit offerings, meaning your credit limits and interest rates may have changed without your notice. You may be forking over for cash without your knowledge. Wasted cash can certainly be put to good use elsewhere, like a savings account or retirement fund.
Take Action
If, after you analyze your credit card account situation, you find there are changes that need to be made – don’t wait. Take a proactive approach. Order a copy of your credit report with score and see how you can clean up your credit. Be cautious about closing too many accounts too fast. That hasty action can take a negative toll on your credit record. Consult with the credit card companies about the impact closing your account may have. Make a decision about which cards serve you the best. Maybe one or two have an excellent cash back program you would like to stick with. Differentiate between the cards with low interest rates and those whose rates have risen recently. You may be surprised to see what changes have taken place since you last checked in with your credit.
Remain Responsible
Once you close out some accounts and have a grasp on what credit card accounts you choose to remain open, continue to spend wisely. Never have a debt ratio over 50%, meaning if your combined credit is $10,000, your balances should never go over $5,000. Make payments on time and for more than the minimum payment due. Never max out your credit cards and never spend more money that you have in cash.
Avoid History
Once you have cleaned out your wallet, stay away from the endless promotional offers you find in your mailbox. Instead, go online and compare different cards, different programs, and the different companies offering credit cards. You can’t make an informed decision without all of the information. With the credit card competition out there these days, it is likely you will only get the best deal if you do your homework.
November 26th, 2008 at 9:34 pm
[...] Gary Fehdrau presents the 10 Rules Of Credit Cards and Credit Card Assist joins in with 7 credit card rules to live by. The Smarter Wallet asks why not use credit cards to reduce your mortgage?. Finally, Apply 4 Credit asks how much plastic is too much? [...]