Look at the good uses for credit cards to figure out how many you should carry with you
Credit cards get a bad name but there are some very good uses for those little pieces of plastic cash.
From reward points to emergency spending, credit cards have saved my financial butt more often than I can remember. Keeping my business spending straight would be impossible without a credit card.
Whether your goal is to be debt-free or you just want to get your debt under control, canceling your credit cards isn’t the way to go.
That doesn’t mean there aren’t dangers to using credit either. Most people have a story about how they got in over their head with credit card debt.
So that tug-of-war with credit cards begs the question, “How many credit cards should I have?”
Best Uses for Credit Cards
I counted at least nine separate reasons for using credit cards, some that are absolutely critical to your financial health.
1) Probably the #1 reason to have a credit card at your disposal is for emergency expenses. The average cost of an emergency room visit is $1,233 and the deductible on your car insurance could easily set you back a thousand or more.
If you don’t have the money sitting in savings, you could be forced to sell investments at the wrong time or to take out a cash advance loan. Neither is a good idea and can cost you hundreds in interest or deplete your nest egg.
2) Many cards offer some kind of reward points on spending, either as cash back or as points to a rewards program. These can be tricky to manage because you’ll pay more in interest than they’re worth if you don’t pay your balance monthly but they can also be a source of free money.
3) Credit history accounts for more than a third of your credit score. If you don’t have a mortgage or car loan, you might be stuck with bad credit without the ability to build your credit history. That’s where regular spending and payments on a credit card comes in. Those monthly payments show you know how to handle credit and can be trusted with bigger loans.
4) I don’t know where I would be without a separate credit card for my business spending. Tracking your business expenses can save you thousands come tax time but only if you know how much you spent. Keeping a separate credit card for your business, even if it’s in your personal name, makes it all so much easier.
5) Many credit cards offer automatic insurance on the things you buy, making it easier to get your money back on bad or broken merchandise.
6) Fraud protection is also offered on most cards. If you call to report your card stolen or your identity stolen within two days, you’ll generally only be responsible for $50 in charges. Carrying a credit card is also safer than carrying a lot of cash.
7) You’ll need a credit card to make car and hotel booking reservations. Your card won’t be charged until you actually use the services but most places require one on file to make the reservation and to cover incidental expenses.
8) Credit cards are free sources of short-term cash. Find yourself coming up short on bills until you get paid in two weeks? You could get a cash advance but the fee will be as high as 500% on an annual basis. Credit cards offer a grace period of 28 days so you pay no interest as long as you pay the balance each month.
9) Finally, carrying a credit card is just more convenient than carrying a wad of cash. I’ve lived in foreign countries where you needed a fistful of bills just to pay for dinner. They can be a valuable tool in teaching students about credit and spending.
How Many Credit Cards is Too Many?
With so many uses for credit cards, is there such a thing as having too many?
Most credit cards do essentially the same thing and fulfill all of the uses listed above so having more than a few is just overkill.
Only you can answer the question, “How many credit cards should I have?” I have three cards for different reasons and uses.
We use one credit card for every day expenses like groceries, paying utility bills and general spending. We only charge as much as we can pay off immediately and pay the entire balance every month. The regular spending and payments has increased my credit score to 735 on the FICO scale and the issuer has increased our limit to $15,000.
I have another credit card for business expenses. It’s issued in my name but I only use it for business spending. Come February of each year, all I have to do is download the monthly card statements and I have all my business expenses listed out.
Finally, I have another credit card reserved for emergency expenses. Since we pay our balance on the primary credit card each month, we could probably just use that one for emergencies as well but we thought it better to have a separate card just in case.
My business card and the everyday expenses card each have their own rewards programs. The everyday expenses card gives us cash back that is automatically deposited and invested into our son’s 529 college savings account. My business card rewards me with airline miles, saving hundreds a year for my travel to conferences.
Most people will get by just fine with three credit cards, including a business card, or just two cards for personal use. Remember to pay off your balance before your statement due date or you’ll end up losing a lot of the benefits to high interest fees.
Credit cards for department stores aren’t usually a good idea since you can only use them in one store. Store cards just trick you into spending more at that store because you feel like you need to use the card if you’ve got it.
I don’t like credit cards with annual fees either. Many cards with fees will pull you in on the promise of low rates but you’re not paying any interest anyway if you pay your balance each month. Other rewards cards charge a fee but the annual fee really eats into the rewards benefit.
There’s no perfect answer for how many credit cards you should have but two or three work for most people. You definitely want to avoid some of these tricks credit card companies use to make you overspend and set strict rules for when you use the cards. Use credit cards responsibly and they can be a great source for fast cash and many other uses.