If you are the owner of multiple credit cards, here are some dos and don’ts you need to know about credit card management.
Credit and credit cards are an integral part of our lives today and it is likely that all around you people are using at least a couple of credit cards. Credit cards are easy to use, convenient and safe and a great tool to build credit history when used right. A wallet full of credit cards also instills a sense of achievement into some. But when you are the owner of multiple credit cards, your responsibility to manage your debt increases even more.
If you do not manage your credit cards efficiently, not only could you end up in a debt trap, your CIBIL score will also decline drastically.
Choosing the right credit cards
The cardinal use of using credit is that you should never opt for it if you are not in need of it. However, if you must have more than one credit card, the first thing you should do is pick a card that is best suited to your needs instead of just taking on an extra credit card just because you have been offered one.
For instance, for some people cash back cards make more sense while for others cards that offer more air miles are the best because they are frequent fliers.
Then of course there is the rate of interest. There is wide disparity in the rate of interest offered by each credit card issuer. It is therefore a good idea to carry out adequate research before picking out a card with the lowest rate of interest.
The same holds true for fees. Each card issuer has a different fee structure that must be checked out while doing your research. Taking the assistance of one of the several web aggregators today may be a good idea while choosing the card that is best suited to you.
Using your cards right
This is another tricky part of using multiple credit cards. You need to be well aware of how to use your credit cards in order to get the maximum reward points. Each card has a different reward point system that you need to know in order to use well.
For instance, some have higher rewards for certain purchases while others give reward points based on the retailers.
When you are using multiple credit cards, it is a good idea to maintain a spreadsheet with the reward points of each so that you have a reference point and know which card to use in order to get the maximum benefits from your purchase by way of rewards.
This is the most important thing about holding more than one credit card. To keep yourself debt free and to maintain a high CIBIL score, you must pay all your outstanding balance on time. The more credit cards you use the more careful you need to be about payment within the stipulated time frame.
Thankfully there are many ways and means you can use today to set up a reminder across your devices, so that you never miss a payment date or discover and unpaid bill in you stack of mails later. These days there are many mobile applications especially built to help you with your debt management schedule and it may be a good idea to check out some.
Paying off outstanding balances
While it is true that the usage of credit cards is a good way to build credit history, it is a myth that carrying credit card balances helps building it. Ideally you should be paying off your outstanding balances in full each month. It is therefore financially prudent to spend only that much on your credit cards that you think you are able to repay within the stipulated time frame.
While doing so, pay off the balance on the card that carries the highest rate of interest first to save money on interest.
If you have spent a large amount on a particular card in a month and are finding it difficult to clear all your outstanding at one go, make sure you spend a lump sum in paying off the card which carries that largest debt and pay off the minimum amount due on others. However, do not make a habit of this, as it is a potential debt trap. Like we stated earlier, you should only spend that much amount on your credit card as you think you will be able to repay within schedule.
Using multiple cards may be challenging, but not impossible if you manage to organise your credit card spend and be aware of repayment schedule. In fact, if you do manage to use all your credit cards judiciously, you may end up giving your CIBIL score a boost.
The key however is to remain on the right financial track and never to go overboard with your credit card spend.
Photograph: Gabriel Rojas Hruska/Creative Commons
The author is a credit expert with 10 years of experience in personal finance and consumer banking industry and another 7 years in credit bureau sector. Rajiv was instrumental in setting up India's first credit bureau, Credit Information Bureau (India) Limited (CIBIL). He has also worked with Citibank, Canara Bank, HDFC Bank, IDBI Bank and Experian in various capacities.