If you’re a really good money manager, you probably have just one credit card, which you use only in case of an emergency. On the other hand, you may not be quite so sensible and have managed to accumulate multiple credit cards because of all those different cards available what with their rewards points, free travel and cash back.
Managing multiple cards
The task of managing multiple credit cards is certainly not as simple as managing just one. However, there are strategies you could use that would make this simpler. So if you do have a billfold full of credit cards, here are eight tips for handling them.
Don’t carry a balance
The first, important thing you should do is not carry a balance on any of those credit cards. As a general rule, those rewards cards have higher interest rates. So if you carry a balance, the interest you pay may offset or even negate the value of the rewards you earn by using them.
Pay on time
In addition to paying off your balances every month, make sure that you’re making your monthly payments before your due dates. The easiest way to do this is with automatic, online bill paying. If you miss a payment due date, this could drop your credit score by as many as 60 points. If you do miss one, immediately contact the credit card provider and ask that it waive the normal fee. In most cases, you’ll find that the credit card company is happy to do this.
Don’t sign up for any cards that have an annual cost
You shouldn’t have any credit cards that have an annual fee. This, too, could just about negate any rewards you would earn from having used them. If you do find that you have one with an annual fee, put a sticker on the front of it with the amount of the fee and the date it will be charged. This will then be a reminder to call the card issuer about a month before the fee is due and ask to have it waived. In the event the company declines, you might want to downgrade the card to one that didn’t have a fee.
The right card for the right purchase
The toughest part of managing multiple credit cards is in maximizing your rewards points. There are mobile apps such as the Glyph, Wallaby and Reward Summit that can help you do this by keeping track of the cards that offer the best rewards for each of your purchases. You should also pay attention to the features of each card, which could include things like extended warranties, fraud protection or travel insurance. These can come in very handy when you’re making a major purchase.
Keep track of your purchases
It’s difficult to pay off your balance each month if you don’t know where you’re spending your money. If you stop paying attention to this, things can quickly get out of control. You should carefully review each credit card’s paper statement or use a program such as Quicken to monitor how you use your cards. Many of these cards have purchase requirements. So you need to track things carefully to make sure you have the right number of transactions or spent the right amount of money to gain the maximum in bonuses.
Watch out for the impact on your credit score
Be sure to understand the effect that having multiple credit cards will have on your credit score. For example, 15% of your score is based on your length of credit history or how long you’ve had credit. If you find you’re not using a card and close the account, this will drop your credit score. Every time you apply for a new credit card, this also nicks your credit score so be careful and not apply for a lot of credit cards.
If you can manage those multiple credit cards sensibly this can be a great way to get rewards points and earn cash back, free travel and other perks. However, this is not a good idea for everyone. The biggest problem is one of temptation. You might get all those cards with the best of intentions but if you let your spending get out of control, then bad things happen. And bad things means excessive spending and missed payments, which can lead to fees and high interest you didn’t expect to pay. The net/net of this is that trying to juggle multiple credit cards is not for someone who is disorganized or easily convinced that they need that shiny new something.
If you’re spending gets out of control
In the event your spending gets out of control and you find that you have high balances on all of those cards, there is a way to pay them off called “snowballing” those debts. The way this works is that you create a spreadsheet with all of your credit cards, their balances, interest rates and due dates. Then sort them from the one with the highest balance down to the one with the lowest. Next, do everything you can to pay off that card that has the highest interest rate while making the minimum payments on the other cards. When you’ve paid off that first card, you will have the maximum amount of money available to begin paying off the card with the second highest interest rate. Keep doing this and you should be debt-free in just two to three years even if you owe as much as $50,000. Here’s a video that explains more about snowballing credit card debt and how to do this successfully.