The Risks Of Using Multiple Credit Cards – Is It Really Such a Bad Idea?
Don’t let your credit card debt get out of control, keep things simple with just one card.
As consumers, we are not encouraged to be loyal. Brands and lenders are constantly competing for our attention and offering better and more appealing deals for new customers. When it comes to credit cards it can be very tempting to take out many more than one – but it’s very easy to get into serious debt if you do.
Why do we risk multiple credit cards?
A large proportion of those who own a credit card has more than one card so it’s fairly common for multiple credit cards to be in use at one time by the same person. There could be any number of reasons for this, including:
- Moving balances to cards with 0% interest for the period of a deal
- Using different cards for different purposes (e.g. one for cash purchases and one for balance transfers)
- To take advantage of different rewards and points systems
So it’s not unusual to try to reap the benefits from different cards but just what are the risks of using multiple credit cards?
You may be unable to get out of debt
Most experts agree that the best way to use a credit card is to pay off the balance each month – or as much of it as you can. That way you will never have to pay any interest on the balance and you’re effectively borrowing for free. That might be the best way to use a credit card but not everyone does use them that way. In fact, according to data from the UK Cards Association only around 56% of the credit card holding population are “full payers” i.e. pay their full balance off each month.
If you have multiple credit cards at the same time it becomes much harder to use them sensibly as there is always the temptation to spend more or not pay off as much at the end of each month. You may struggle to keep track of the balances and end up spending more on each card than you can afford to repay easily.
Your credit score could be affected
Too much debt tends to drag a credit score down, especially if you never pay any of it off or if you always make use of a large proportion of your available credit (i.e. over 75%). If you have multiple cards and each one has a high balance that you’re just making minimum payments on then you could find your credit score drops over time. To be more accurate you almost certainly will see your credit score suffer.
There is a higher risk of late payment and default
Juggling multiple credit cards makes you vulnerable to losing sight of what you need to pay, and when. If you start missing payments because you forgot that you needed to have cash in your account to cover them then you could end up in a default situation. The charge the credit card provider will levy is nothing compared to the effect this will have on your credit score. In extreme circumstances it could also mean that you may be required to urgently clear the entire debt in one go, leaving you in the potentially dangerous situation where you need to borrow money at a high-interest rate.
You might spend on things you don’t really need
Splurging on credit cards is very easy to do – we’ve all done it from time to time. Using plastic to pay – as opposed to cash – often makes it feel like there are no consequences to the purchase. You might be tempted just to spend the available balance on the card because it’s there and many of us convince ourselves that we will clear the balance at the end of the month and then just forget to do so or, worse, are unable to do so – and the debt mounts.
Being Unaware of Loss or Theft
If you’ve got multiple credit cards you’re much less likely to be able to monitor them all effectively, and so it will be difficult to spot signs of theft or fraud that could end up costing you dearly. If you just have one card that you use you should always be able to detect unusual activity or payments and immediately tackle the problem.
There can be benefits to multiple credit cards such as shifting debt to cheaper or 0% cards for the period of a deal but overall the benefits never outweigh the risks because very few of us can perfectly manage multiple cards, always pay off our debt each month and avoid being tempted into over-spending because we have credit available. Think very carefully before agreeing to take out yet another credit card and if there really is a good deal to be had then switch all your debt to that card and cancel the old card – don’t be tempted to keep it “just in case”.
Similar Posts:
- The Pros and Cons of Credit Cards
- 4 Ways to Keep Your Credit Score Healthy
- 5 Practical Ways to Improve Your Credit Score in 2021
- How to Get a Loan: A Brief Guide to Taking out a Loan
- Rebuilding Your Credit After Years of Debt
