Is 25 Credit Cards Too Many?

A big topic in the personal finance blogging world is often credit cards vs. debit cards. Another, somewhat related topic is how many credit cards should a person have? This is not a one-answer-fits-all sort of question, but I feel pretty certain that most people would agree that 25 credit cards is a bit much.

Meet Pete D’Arruda, not only does he have 25 credit cards with a total available credit limit of $300,000, but he’s proud of it!

The crazy thing is he’s a personal finance consultant!

Why would anyone, much less a finance consult, think so many credit cards is a good thing? Well, it’s about the almighty credit score. See, one of the major factors in determining your credit score is what’s known as your debt-to-available-credit ratio (or “utilization rate“). This is simply a ratio of how much you currently owe to your total available credit. In D’Arruda’s case, his total available is a mighty $300,000.

So you would expect his debt to available credit ratio to be quite low, and his score to be quite high since he never carries a balance from one month to the next. In fact, he does boast of a 810-815 FICO score.

He also claims to have piles and piles of rewards in the form of cash back, airline miles, freebies and more.

But here’s the problem: You can get a very good credit score and low utilization rate with far less than 25 credit cards. This is just extreme.

Most finance experts recommend keeping your debt to available credit ratio below 30%. This means that D’Arruda has to keep the total of his current balance to under $90,000 to get the maximum benefit to his credit score. $90,000! Most people with $90,000 in credit card balances is likely to have bigger problems than a less than perfect credit score. This is just overkill.

You can achieve the same benefit by having one or two credit cards, and charging less that 30% on them. If that’s less than you spend per month, then use cash for the difference. (Here are 5 more ways to improve your credit score)

Besides having far too much available credit, he’s also opening himself up to 25 different potential points of identity theft.

And I for one wouldn’t want to have to keep track of all those accounts, various balances and rewards programs! And all for a high credit score which may not be all that important anyway.

I will give him credit for having self control. How many people in his situation would simply find themselves six figures in debt?

Related Posts:

• First Premier Bank Credit Card Offer Features A 79.9% APR, a Bad Deal – For The Bank!
• How Your Identity Gets Stolen (and What to Do About it).
• Worst Credit Cards for 2010.
• Heads Up – Your Credit Score May Suffer Even If You Pay Off Your Card Every Month!
• Using Secured Credit Cards To Rebuild Credit.

Are Banks Using Business Cards to Pay for Loss of Consumer Card Fees?

I’ve already chronicled the many “unintended” consequences of the CARD Act of 2009 that affect consumers, but it looks like there’s a new one that affects business owners.

Since the CARD Act eliminates many of the fees and interest payments banks traditionally use to offset other expenses and because the CARD Act only regulates consumer credit cards, banks are paying for other services like free checking and general business costs on the backs of business card holders.

That may not sound like a big deal to many, especially with the “business is the bad-guy” mentally that seems so prevalent over the past few years, but it’s not companies like GE we’re talking about – it’s largely small, independent businesses.

Many of these are people who have lost their full time jobs as employees and decided to make a go of it on their own.

The biggest concern for most business card holders is a hike in interest rates on existing balances. This could mean thousands in extra payments a year for anyone carrying a large balance. That’s significant for many home-based or startup businesses.

To make matters worse, some unscrupulous credit card issuers have begun marketing business cards to individual consumers:

“A study released Wednesday by the Pew Charitable Trust’s Safe Credit Card Project says that consumers are still vulnerable to these practices, because more than 10 million offers for business cards are sent to U.S. households each month.”

Consumers may not even be aware that the CARD Act doesn’t pertain to business cards. It looks like credit card rates and fees that were once difficult to maneuver have just become more so. Be careful out there people.

Read more.

Related Posts:

• Banks React to the CARD Act.
• How The Credit CARD Act Of 2009 Might Be A Bad Deal.
• New Game, Same Old Credit Card Tricks And Traps.
• How The Credit CARD Act of 2009 May Be Affecting Your Rewards.
• 10 Credit Card Tips for 2010 and Beyond.

Which is Larger: Your Credit Card Debt or Your Savings Account?

Here’s an interesting infographic from BankRate.com that shows a slim majority of respondents have a larger emergency saving fund than a credit card balance, but it’s not all good news.

For example, it’s kind of frightening to me that 6% have no idea! How do you not know?

I find it interesting that a very clear majority (59%) of those under 30 have a larger emergency savings fund than credit card debt. It certainly seems that this younger generation does not share it’s parent’s love of leverage.

What do you think of having no debt and no savings? Is that better or worse than having more credit debt than savings?

It’s encouraging, but there is a lot of progress to be made, as Greg McBride says.

Related Posts:

• Don’t Let Credit Card Bonus Offers Turn Into Debt!
• How to Settle Debts On Your Own.
• What kind of Spender Are You?
• First Premier Bank Credit Card Offer Features A 79.9% APR, a Bad Deal – For The Bank!
• Balance Transfers – Simple Solution or Debt Enhancer?

Don’t Let Credit Card Bonus Offers Turn Into Debt!

For many, credit card bonus offers can be a great perk but they can also be the gateway to debt.

Have you ever bought something at the store because you had a coupon for it, only later to realize you don’t really need or even want the product? Well, it’s not only the retail industry that uses this technique, but also credit card companies. As we all know, they frequently offer miles, points or cash back to try and get you to apply. Both major and store credit cards do this.

But do thses credit card bonus offers ever make sense or are they just a debt trap? Well here are three questions you should ALWAYS ask yourself beforehand…

3 Questions to consider before accepting those credit card bonus offers.

(1) Do you always pay your balance in full every month?

If your answer is “no” then you can go ahead and skip the next two questions, because I can tell you right now that credit card bonus offers are something that you should 100% completely avoid. If you are the type of person that is prone to getting into credit card debt, then it would be pure stupidity to sign-up for “10% off today’s purchase” or “$50 cash back” only to be left with a piece of plastic that will tempt you day in and day out to spend beyond your means. In a nutshell, credit cards don’t make sense if you are someone that uses the “credit” part of them!

(2) Why do you want the offer?

Just like the coupon example I opened with, some people signup for credit card bonus offers when they don’t really even want the card to begin with. This is worsened by the fact that we get pressured to apply at a very inconvenient times. Airlines do this – they set up their booths in the terminal, hoping you will make a rash decision and signup without missing your flight. Department stores do this – they ask for you to apply at the spur of the moment during checkout.

I give people a simple litmus test to gauge whether they should signup “How long have you wanted this card offer?” If the answer is 2 minutes, then they obviously haven’t had time to think about it. However if they’ve been deliberating for a while, then that’s a healthy sign. And sometimes, credit card bonus offers can be beneficial.

For example, my mom and I have been planning a trip for this spring and have been keeping our eyes and ears out for ways to reduce the cost of it. We had come across the Hyatt credit card offer last September which seemed good – we figured we could use the two free nights at Hyatt and then stay the other four nights at a different hotel more appropriate for our budget (like Super 8 or a local motel). But even though we both initially liked the idea, we thought about the Hyatt credit card for three full months before actually signing up for the offer. I think when in doubt, you can never take too long to make your decision with finances.

(3) Will the credit card cause you to spend more?

Getting 5% cash back, double miles, or whatever the reward may be won’t actually save you money if it causes you to spend more. For example, will higher rewards at the grocery store cause you to buy things you normally wouldn’t? Or would 5% at drugstores cause you to go to Rite Aid to buy your toothpaste and shampoo, instead of going to Target or Wal-Mart where you can get it significantly cheaper?

The bottom line is that the rewards from credit card bonus offers only make sense if you are earning them on purchases you would be making regardless. This especially holds true for airline cards – they typically give 25k miles at signup but often times you may need 25% to 50% more miles than that just to get one flight. Will that deficiency cause you to spend extra? If it will, then you shouldn’t have the card!

Conclusion?

For the right person, credit card bonus offers might make sense in certain situations. For many others, it is nothing more than a hook, line and sinker that leads to debt. Make sure you know what category you fit into before you ever bite the bait!

Related Posts:

• How to Settle Debts On Your Own.
• Balance Transfers – Simple Solution or Debt Enhancer?
• How Credit Repair Now Can Save You A Lot Of Money Later.
• Which is Larger: Your Credit Card Debt or Your Savings Account?
• What kind of Spender Are You?