| |
Enticing
credit card
offers fill the mailboxes of thousands of
Americans every day. Accompanied by amazing offers
of zero percent interest for six months and no
fees for
balance transfers,
15% to 20% off your first purchase, discount hotel
rates and free movie tickets, the list goes on and
on. And on impulse we fall to our knees and sign
on the dotted line without thinking about just how
much another credit card will affect our families,
our credit histories, or our financial futures.
Before you sign up for another card, ask yourself
what is the rule of thumb for
credit cards,
just how many credit cards is enough? Do you know?
Is there a magical number or is it just a matter
of how you manage them? If your answer to all of
these questions is I don’t know, read on to find
out.
Most
Americans carry between five to ten credit cards
in their wallets, with the average household owing
$12,000 in credit card debt. Considering that the
median U.S. household income is only $49,772, that
is 24% of the income already committed with out
considering mortgages or car loans. This is a bit
alarming. Especially considering that future
creditors prefer to extend credit to individuals
or families with a debt to income ratio of 36% or
less if 24% of that 36% is already committed to
credit card debt, that doesn’t leave room for much
else. So just how many credit cards should you
have? Surprisingly there is no magic number;
however, two to three credit cards is generally
viewed as enough.
While there is no magic number, the single most
important thing to remember when you encounter the
wonderful world of credit cards is that it’s not
the number of credit cards that you have, but your
outstanding balance and the number of years that
an account has been opened. You should aim for an
outstanding balance between 25% to 50% of the
available credit on each credit card that you
have. Any more than that sends a red flag to
potential creditors who see your ability to repay,
in the event you are faced with a major financial
obstacle, decreasing as your debt increases.
Additionally, multiple fairly new accounts are
viewed negatively.
Something else to consider is that the fewer
number of credit cards you have the easier it is
for you to keep track of them. Keeping track of
them includes knowing what your
interest rates
and fees are and any changes that may occur with
them or how they are applied. Additionally, with
just two to three cards you are in a better
position to know exactly where you stand with your
balances and your spending. To make sure that your
credit is working for you and you aren’t working
for it, it is pays to know where you stand; fewer
cards help you to stay on top of that.
So
there is no set number of credit cards that you
should or should not have. The key to preventing
yourself from getting trapped in the rat race is
having a manageable amount, perhaps two or three
that you can easily keep track of. It is crucial
to know the interest rates for each card, your
outstanding balances, and other card features. The
next thing is knowing where you stand in terms of
your overall debt including credit cards,
mortgage, car loans, student loans in comparison
to your income. With all of that knowledge in
hand, remember two important percentages, the 36%
which is ideal for your debt to income ratio and
25 to 50% for your outstanding balances.
|
|
