Managing Multiple Credit Cards: Do’s and Don’ts
“What are some tips for managing multiple credit cards?”
Do you have more than one credit card? If so, you’re part of the 33 percent of Americans over 18 who have two or three credit cards.1 Managing the balances, bills and spending on multiple cards can be challenging and a single mistake can lead to penalties. Here are some Do’s and Don’ts to help keep you on track.
Don’t Carry a Balance
It’s a myth that carrying a credit card balance helps build your credit record. Having a credit card and paying it promptly each month in full is what actually has a positive effect on your credit score. There are two ways to tackle paying off balances on multiple cards: paying off the card with the highest interest rate first, or paying off the card with the lowest balance first. Paying the high interest rate card will save you money in interest while paying the lowest balance is a faster way to close out an account. Whichever way you choose, be sure to pay a lump sum on the targeted card while still paying the minimums on the other cards.
Do Pay On Time
Multiple cards mean multiple bills each month. The more cards you hold, the easier it is to lose a bill or forget to send a payment on time. Avoid late fees by setting up online bill pay for your credit cards. Set a monthly reminder on your calendar or phone to login to your accounts and make payments. That way you’ll never uncover a late bill in a stack of old mail.
Don’t Select Cards with Annual Fees
Avoid credit cards that charge an annual fee simply for the convenience of use. There are plenty of cards available that do not charge an annual fee and some cards that charge an annual fee but still put money in your pocket by offering a rewards program. For example, if a card charges a $50 annual fee but in the course of your annual spending you earn enough points for a free airline ticket worth $500, you still come out ahead of the game.
Do Pick the Right Card for Each Purchase
One of the trickiest parts of having multiple credit cards is knowing when to use each one to maximize rewards points. Some cards may have higher rewards for certain types of purchases or certain retailers. If you have more than two cards, consider creating a spreadsheet or Google Doc listing the key points of the rewards plan for each card. That way when you purchase airline tickets or knock out your holiday shopping you’ll have a quick point of reference for increasing the power of your purchase. Or look into mobile apps such as Reward Summit or Walla.by that can help you make the best choice.
Having multiple credit cards is challenging, but if managed properly it can actually help your finances. For example, a business traveler who is required to pay her expenses out of pocket before being reimbursed may carry a personal and a work card. This avoids mixing her personal finances with her work expenses and she can earn a great deal of cash back with rewards points while she’s spending her employer’s dollars. Or a parent who is trying to teach their teenagers about the importance of good credit habits may want to give a first credit card by making them an authorized user on an account (with a low limit!) and let them budget their own spending. The key is to remain responsible and organized to stay on the right financial track.
AARP Bulletin Survey on Budgeting and Credit Card Use, AARP