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Pros and Cons of Having Multiple Credit Cards

On one hand, having more than one credit card provides more rewards, while on the other, they may become a financial burden for you. Read about the many pros and cons of having multiple credit cards.
Pros and cons of having multiple credit cards
Tip
Consolidating your credit cards by transferring the balance of your multiple credit cards to just one card can help get a lower rate of interest to pay off your debt.

In a study conducted a few years ago by Experian Consumer Direct, it was found that approximately 14 percent of the U.S. population had more than 10 credit cards. Alarmed by this fact? Quite certainly, I guess. Speaking of multiple credit cards, there are many advantages and disadvantages to it. The advantages are financial security, easy assortment of personal and professional expenses, and a higher credit rate. Having more than one credit card will also allow you to make staggered payment of bills where you can make payment for your expenses throughout the month. The cons of the same are risk of overspending and difficulty in management of the credit cards. Here's an elaborate look at what the benefits and pitfalls could be.

PROS

Online Purchases

Imagine what will happen if you have a single card for all your online and offline purchases. You stand a chance of identity theft or falling prey to a credit card fraud during online transactions. This will not protect your identity, and you will lose out on a considerable amount of money. On the other hand, if you have a separate dedicated credit card for online transactions with a lesser spending limit, you will not stand to lose much in case of a fraud. In fact, monitoring the credit card statement from time to time will allow you to stop the damage from credit card theft or hacking.

Reward Points

When you use your credit cards for petrol or make any other purchases, you get reward points. Apart from this, you will also be a part of loyalty offers, discounts, bonus points, free gifts, etc. This may include air miles, cashback program, restaurant vouchers, clothing, gifts, hotel accommodations, etc. It will always benefit you by saving on cost for you. Now think of how many reward points you will gather if you have multiple cards. Also, it is often observed that when a card gives a certain benefit, it may not offer cashback. Hence, keeping separate cards for various expenses will help you earn a good amount of reward points.

Credit Rating

Loan lenders will study your credit history thoroughly before deciding your creditworthiness and loan-repaying capacity. Also, the credit bureaus will conduct a study of all your financial accounts for assessing your credit score. Hence, if you have multiple credit cards and pay your bills on time, you can have a low debt utilization ratio, which will boost your credit score in a positive way. It will also speak of you as a responsible individual who pays his bill on time and does not indulge in reckless expenditure. All this will definitely help you build credit.

Handy During Emergency

Just imagine a scenario where you have traveled to a different country and have hogged at a restaurant. When you reach the billing counter, the salesperson informs you that your card has been denied due to some reason. Also, many merchants do not accept all cards. While some may accept Visa, others will insist on a MasterCard. At such times, your secondary card can come to your rescue. Carrying another credit card will not only help avoid such embarrassment, but also an impending lawsuit. Also, if your credit card gets lost or stolen, an additional credit card will always bail you out.

Sorting Personal Expenses

Many times, we have to spend out of pocket for official purpose and then submit the expense reports with bills or credit card statements. The last thing you would want is submit a credit card statement showing your personal expenses along with the professional ones to your office. They would not be pleased to know about how many beer cartons you ordered, or that you have spent half your salary buying lingerie. Similarly, you will have to keep a record of all your professional expenditures if you are an entrepreneur for taxation purpose. At such times, if you have multiple credit cards, you can clearly separate your personal expenses from the professional ones.

Maintaining Records

For most of us, keeping records of all our expenses and then tallying them at the end of every month is a tedious task. If you assign specific credit cards for certain work, this problem will not arise. For example, you can keep one credit card for paying all types of bills, the second for household necessities and groceries, and the third one for your personal shopping. This will not only help ascertain the expenses, but will also help set a budget by fixing the credit card limit.

Power to Choose

Having many credit cards gives you the power where you make the choice of choosing a bank. You can also get the benefit of negotiating lower interest rates, by threatening to move your account to another bank. This way, you can get maximum benefit from your existing credit card accounts.

CONS

Blowing up Your Budget

Needless to say, your purchasing power will increase with the number of credit cards. Hence, unless you are a disciplined shopper, in all probability, you will end up spending more than you can afford. This will completely wreck your budget. As you will not have to pay for the amount immediately, you will be tempted to indulge in excessive shopping. All this will definitely have a draining effect on your personal finances.

Adverse Effect on Credit Score

As your debt will spiral out of control due to excessive indulgence in buying things you do not need, you will end up chin-high in debt. As your debt utilization ratio will be high, it will have an adverse effect on your credit score. This will severely damage your credit score and credit standing. Hence, you will not be able to reap the benefits of having a good credit score like lower rates of interest, easy loans, etc.

Difficult to Manage

Keeping a track of all the credit card statements and their bill payment due dates is an herculean task. If you have credit card bills that need to be paid at different intervals within a month, it will only add to your confusion. It will be very difficult for you to manage more than one card and liabilities that come with it successfully. Moreover, if you forget to make the payment on time or underpay, it will again affect your credit score as well as attract a heavy interest.

Beware of Banks

Owing to its cost-cutting and operational reasons, there are many banks that are now opting to close the credit card accounts. Remember that credit agencies take all your credit accounts into consideration. This means that the more credit cards get closed, the higher are the chances that your credit score will get affected.

More Fees

As you know, your credit card company will charge you with annual service fees and an interest on the balance. Hence, if you have 6 credit cards, just imagine the amount you will be liable to pay in terms of fees. Hence, do not forget to calculate these charges when you are thinking of affording another credit card.

Apart from this, having multiple credit cards allows you to restrict the credit limit on a single card, thus, reducing the damage in case of a fraud. However, having multiple cards can prove to be a disaster if you have spending habits that lack discipline. Budgeting your expenditure and keeping a track on it can be a solution to this problem. In my opinion, unless you really require extra credit cards for your personal or professional needs, there is absolutely no point in getting additional ones.
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Published: January 4, 2014
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