Many people learned their lesson the hard way that debt is all-consuming. Rationally, they know to stay away from this dreaded financial burden since it can be easy to fall into.
Despite this, they took the plunge and are now desperate for an escape. The extraordinarily high interest rates and finance charges that accompany credit cards are enough to grow your debts into an amount you may never recover from.
Many consumers mistakenly try to avoid credit card debt by eliminating plastic from their lives entirely. There is some logic to this because by removing the temptation to spend, you are less likely to land in debt. However, this may not be the best solution for everyone.
Sometimes, the real culprit lies in the inability to control your spending. Instead of becoming more disciplined, you could create financial turmoil by cutting off multiple card accounts.
Data from Experian reveals that Americans carry an average of four credit cards. In addition, experts say there is no one-size-fits-all number when it comes to the amount of cards you should carry. That answer depends on your unique lifestyle and financial situation.
So, what can you do if you are already managing multiple credit cards?
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Tips to retain several credit cards and avoid debt
Juggling several credit card accounts can be risky if they aren’t managed properly. Fortunately, there are techniques to help you ensure these accounts don’t land you in a financial bind.
Define the purpose of each card
It’s important to categorize where you will use each card. You should prioritize them based on the interest rate and rewards it offers. For instance, an airline credit card would likely rise to the top of the list if you’re a world traveler.
While there are credit cards that are ideal for traveling, others offer discounts for groceries or restaurants, your favorite store, and more. By understanding what advantage each card provides, you can strategize to help maximize the benefits you receive from them.
Budget the use of your cards
Once you understand the best way to use each card, you should account for those purchases in your budget. For instance, a credit card used for buying gas should have a specific number attached to it. It’s usually okay if you go over a little bit for things that fluctuate in value, including gas, food, and groceries.
Be sure to allocate a budget for each category and set the money aside, if possible. You should always try to avoid spending that money on anything but what it’s allotted for.
Pay your balance in full every month
Creating a budget is a smart way to only spend on those things you need. Impulse purchases don’t fit within a budget and should always be avoided. This can help you stay away from finance charges, the effects of high interest rates—and most importantly, debt.
Make timely payments
The amount you pay will increase if you fail to meet the payment deadlines. Interest charges and late fees could add up over time to hundreds of dollars. When you are juggling multiple credit cards, assigning them to the same due date will help you avoid penalties.
Timing payments for right after you receive your paycheck is another good strategy for paying your bills on time. You will have the funds in hand when needed, but not for so long that you might be tempted to use them on unnecessary purchases.
Track your expenses carefully
It is also important that you track your expenses. Do not wait for the billing statement to arrive before you take note of what you are spending. If you are worried about the tedious process, you can research free budgeting apps or personal finance software to help you keep tabs on both cash and credit transactions.
Avoid credit cards with annual fees
If you own cards that charge annual fees, consider having them waived. If not, try downgrading them to an account without this fee. Annual fees are only justified if the rewards surpass the amount.
By following the suggestions above on how to use your credit cards responsibly, you are less likely to end up in debt.
Reasons why you have still multiple cards
The point is credit cards can help you enjoy a better future. They have benefits that go beyond the cashless transaction. Here are a few reasons why some people may want to keep your multiple credit cards.
You can’t afford to risk your financial health
As mentioned previously, closing your credit cards could negatively impact your financial well-being. Therefore, if you are gearing up to take a huge personal or business loan, some people might want to refrain from shutting down your accounts.
You want to categorize your credit spending
Having only one card to pay for all your expenses might be a bit more difficult when you want your spending categorized. By assigning different expenses to each card, it will be easier to see where you are overspending and where you have wiggle room when you need it.
Your lifestyle could benefit from reward points
If you can maximize the rewards for various credit cards, then feel free to keep all your credit accounts. These rewards can save you a significant amount of money in the long run – if you pay the full balance of your debts on time. That way, you only pay for the value of what you purchased and not a penny more.
You don’t have a problem with temptations
Lastly, and perhaps the most important reason you have multiple cards, is if you know you can curb the temptation of spending. People who don’t control their spending and lack the discipline needed to track expenses will not benefit from owning multiple cards. In fact, this may do them more harm than good.
Eliminating credit cards altogether may not be the answer for everyone for many reasons, including resources in the event of an emergency. By organizing your credit cards and using them responsibly, you could enjoy their perks and benefits without falling into debt.
