The Risks of Having Too Many Credit Cards: Implications for Your Finances
The Underlying Risks of Excessive Credit Card Debt
Having too many credit cards or excessive credit card debt can lead to significant financial stress, constant harassment from debt collectors, and damage to your credit score. If you accumulate too much debt, it can become difficult to manage payments, leading to delinquency. This not only affects your personal finances but also opens you up to predatory lawsuits and financial stress.
The Secret to Solving the Problem: STOP SPENDING
The absolute first thing you should do is stop spending. If you don’t have money in your pocket, you don’t buy it. Period. End of story. Cutting up your cards is important, but outright closing them can cause immediate financial strain if you owe money on them. Instead, consider transferring balances to a consolidation loan with a lower interest rate, provided you have cut up the cards. Do not get any new replacement cards until you’ve paid off your current ones.
Avoiding Financial Traps: Credit Utilization and Payments
Since credit card debt is revolving, your minimum payments will rise as your balance increases. This can make it particularly difficult to manage debt. Excessive utilization of your credit limit can lead to lower credit scores, as credit utilization is a crucial factor in determining your creditworthiness. If you find yourself with too many credit cards, consider closing the ones you don’t use or consolidate them into a few main cards.
Strategic Credit Card Management
Personal experience shows that while a large number of credit cards might not limit your ability to get more, holding a high balance across multiple cards can negatively impact your credit score. Credit card issuers evaluate multiple factors, including your income, debt-to-income ratio, and credit score, when deciding to issue new cards. Therefore, maintaining a low balance across multiple cards is key.
Personal Anecdote: A Cautionary Tale
Years of smart credit usage led me to carefully select four credit cards that met my needs. My total credit limit across my four cards was Rs.300,000. In 2017, a leading Indian lender introduced a new credit card. Despite my reluctance to take on more debt, I was attracted by the rewards program and considered adding the new card to my portfolio. However, the lender was hesitant to extend more credit, as my total credit limit of Rs.300,000 made them uncomfortable. They expressed that my application was likely to be rejected not because of the number of cards, but due to my high total open credit.
From this experience, I learned that while having multiple credit cards isn’t inherently problematic, maintaining a healthy balance is crucial. It’s important to monitor your credit usage and ensure you can manage your payments effectively.