When evaluating credit cards, it’s important to recognize that their benefits extend beyond rewards points. Credit card perks can offer advantages such as extended warranties, fraud protection, travel insurance, and coverage against theft of new purchases, all of which can lead to long-term savings, according to consumer finance expert Matt Woroch.
Drawbacks of having multiple credit cards
However, managing multiple credit cards can present significant challenges. Caution is needed, as having several cards can increase the risk of overspending. For example, it is possible to incur more debt with three credit cards, each with a $5,000 limit, than with a single card set to the same limit.
Woroch noted that consumers with multiple cards might lose track of their spending unless they actively monitor their purchases and balances, often leading to higher outstanding balances and accruing interest charges.
Managing several credit cards also means dealing with various due dates for monthly payments. Missing a payment can adversely affect credit scores. Furthermore, having multiple cards could result in several annual fees, significantly impacting costs, even for users who do not carry a balance.
Efficiently utilizing multiple cards demands time and research to fully understand each card’s benefits and to decide the best card for specific purchases. Premium credit cards, such as the American Express Platinum, have increasingly high annual fees but often come with complex benefits that are broken down into smaller limits, complicating potential value for the cardholder.
How many credit cards are too many?
Determining the right number of credit cards varies by individual. According to financial expert Roman, while one person might find one or two cards hard to manage, another may successfully oversee several accounts. The critical factor is recognizing when credit card management becomes overwhelming, leading to missed payments, accumulating debt, or accounts that no longer serve financial goals.
Indicators that someone may have too many credit cards include:
- Missing or making late payments
- Making only minimum payments
- Carrying balances on multiple cards
- Paying annual fees on infrequently used cards
- Experiencing credit denials due to excessive inquiries or high balances
Roman emphasized that the focus should be on whether the credit cards align with a person’s financial aspirations and can be effectively managed over time.
How to decide how many credit cards are right for you
To determine the optimal number of credit cards, individuals should assess their financial goals. For those facing debt or struggling with impulsive spending, maintaining no credit cards may be prudent. Conversely, if a person can manage their balances responsibly, having two or three cards might be advantageous, provided they are aligned with personal spending patterns.
Senior vice president of consumer lending at BECU, Nola Ogunyemi, advised consumers to evaluate their existing spending habits before selecting cards, emphasizing the need to compare cards with no annual fees to assess value. For instance, someone whose spending primarily goes to entertainment may benefit from a different card than someone who travels often.
Individuals are encouraged to compare key card features, such as annual fees, interest rates, and rewards programs. High annual fees should be justified by ensuring sufficient use of the benefits to warrant the cost.
Additionally, consumers should consider interest rates critically, particularly if they regularly carry balances, as higher rates can significantly hinder financial progress.
For those with an excess of credit cards, closing them can inadvertently lower credit scores. Therefore, it is advisable to keep older, no-fee cards, while closing cards with annual fees that are not in regular use.
