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What risks do you run by having too many credit cards?

It feels good to get a phone on your reward points or air miles or a stay, free. However, managing multiple credit cards is more than about reward points. Here is what you need to be careful about.

We often associate owning credit cards with the number of bank accounts we have. This happens thanks to how credit cards are sold to bank customers. While having more than one bank account can be a useful tool for financial planning, owning more than one credit card, might just complicate matters more than adding any benefit. 

Let’s understand that a credit card primarily stretches your spending period by giving you roughly 20-50 days of interest-free loan. What many cards offer in addition to this are reward points and benefits which help you get good deals and even freebies for a number of lifestyle and electronic spends that you seek. 

It feels good to get a phone on your reward points or air miles or a stay, free. However, managing multiple credit cards is more than about reward points. Here is what you need to be careful about. 

Overspending 

Each credit card you hold gives you a credit limit which is at least three to four times what you spend in a month. Add all the different credit limits and you may start to feel like you can afford a lot more than what you did before the cards appeared. In reality, as mentioned above, credit cards give you a loan; the credit limit is misleading and often a lot more than what you can afford to spend in the 20-50 day credit period. 

Ideally, spend only as much as you can afford to pay back every month at the end of the 50 day period. Credit cards help you stretch your money but by no means do they increase your affordability. Then having more than one really doesn’t add value to your money life, it only adds temptation to spend more. 

What you can’t afford on one card, shouldn’t be bought at all. In fact, a good check is to ensure that on a monthly basis you don’t exceed 20% of your credit limit and if you want to make any large spends on your card to gain those reward points, then plan ahead and ensure you will be able to repay it fully at the end of the 50-day credit cycle. 

Ideally, spend only as much as you can afford to pay back every month at the end of the 50 day period.

Fees 

If you fall behind on your payment you are looking at late fees and interest charges on your credit card bill. While the late fees is an absolute amount, the interest charge can be as high as 3% a month on the entire bill amount for the month where it is not fully paid. 

Having more than one card might give you a false sense of security to repay the balance using your other card or shift your subsequent purchases to another one. But this cycle can only last a short while and eventually you will have to repay everything from your savings.

If late payments start on more than one card then your fees and interest charges will only go up and cause more trouble. Not to mention that any prolonged delay in repaying your outstanding dues can have a negative impact on your official credit score. 

Credit card benefits or reward points are like a bonus, don’t mess up your affordability and ability to repay the dues chasing this. Be mindful while using a credit card and most of the times you really don’t need more than one card that’s lending you money. 

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