As of this writing, I already have 4 credit cards (modesty aside), all in excellent credit standing. I’m a full-payer / transactor in all those cards, and fortunately all cards are lowly utilized.
Recently though, I’ve been reviewing my monthly expenses (getting more mature you see?) and credit cards payables remain a major expense. So, among my actions points are:
- Reduce credit card spending/usage
- Reduce credit cards held
Reduced Credit Card Usage
I usually carry all my credit cards with me everyday as it provides ready credit in case of emergencies (hopefully none) or (more usually) impulse buys. Makes me very liquid. Gives me options on which card to use depending on the cutoff and when my purchase will be due (Read credit cards basics here). Cards are advantageous as well if you need to purchase on instalments.
But at the same time, this financial power is very tempting. Even though I do not revolve on my card dues, I still end up with some sizable payables every month. The allure of using your credit card even if you have cash on hand, is that you swipe and swipe, thinking that you have cash to pay for it anyway, thinking that you’re just deferring the payment. But in reality, you don’t set aside that cash meant for card payment. In fact you end up spending the cash anyway (meant for card payments) for something else. You end up spending higher than your means. My goal now is to use cash instead of card more often, so that I can track how much cash I really have left, and how much my future card payments are. Cash comes before card. Use card only as second option. Don’t use your card if you don’t have present or future cash! And don’t overuse your card just because you anticipate some future cash flows!
Reduced Cards Held
Carrying multiple cards with varying due dates also provides convenience as you are able to defer your payments in varying lengths of time. The catch is you have to monitor these due dates carefully and ensure that future cash flows are enough to fully pay the card balance (don’t revolve on the card as much as possible). But then again, tendency is to forget that your other cards already have similarly sizable balances, and you end up having all your cards heavily utilized. If you leave these at home or decide to cancel some of you cards, then you don’t get to use all your cards. Monitoring your usage of fewer cards will be more manageable, enabling you to spend more wisely. And let’s face it, let us not tempt ourselves with so much available credit.
After all, a combined credit limit of P300k from 3 cards in your wallet is very tempting compared to just bringing a card with P100k limit. Even if you spend the same amount on one card or spread out in 3 cards, it’s better to just use fewer cards. Less cards and balances to track, less due dates to meet. Less annual fees to pay.
Other factors to consider on whether you really need multiple cards:
Annual fees. Is the aided cash flow you get commensurate to the annual fee you need to pay? Or the instant rewards and promos that you get to avail?
Risk of losing the card or getting stolen. If you have all your cards in your wallet and you get robbed, then you have to contact x number of banks just to have the cards cancelled. And the culprit will then have easy access to a more sizable stolen credit limit.
Cash Flows. Cards are there to aid your cash flows, not to increase it. You don’t get richer with using a card since you need to pay the balances every month anyway. So don’t feel like one. With a card, you should get wiser. Take advantage of the deferred payments and installment purchases on 0% or minimal interest, but not the minimum amount due. Safer to bring as well compared to wads of cash.
So my question now to my self is, out of my 4 cards, which one/s to fully settle, close and cancel? The one with the highest annual fee, the one with the least perks and rewards, the one with the lowest credit limit, or the least known credit card out of the 4?