Until a few years ago, multiple credit cards were considered a status symbol, which is why perhaps many find it difficult to refuse a 'lifetime' free or platinum card offered to them either by their bank, airline, retailer or employer. Added to this are debit cards which many banks have started issuing to all their account-holders. Today, these multiple debit and credit cards compete in our wallets to get swiped at the merchandise. As a result, usage of multiple cards lead to tracking errors, missing payment dates or ignoring a wrongful entry at the bank’s end.
How many credit cards?
Don’t opt for more than two credit cards. Most banks offer good credit limits which reduce the scope for having additional cards. If you have a low credit limit, it could be either an issue with your credit score, or some banks follow a staggered approach in enhancing credit limit with new customers.
“With a spate of credit card offers such as cash backs, i-mint points, etc, a customer gets convinced about signing up for an additional credit card. These offers are complicated, worded differently and are offered by most cards today. Hence, a customer should just stick to a Visa and Master Card, which are widely accepted throughout the world,” says Suresh Sadagopan, a certified financial planner with Ladder 7 financial Advisories.
Managing payments
Keep a primary credit card so that you route all your expenses through that card. First, get a stock of what kind of credit cards you own. When it comes to co-branded cards such as a petro card, airline card or a shopping card such as ICICI Bank-Big Bazaar credit card, it’s obvious these cards would be given a preference for specific use because of higher reward points, which would offer better mileage than a plain vanilla credit card. In such cases, you could route all expenses through this particular card and keep the regular card as a back-up. “It would be easier to track your expenses as the second card would not generate any bill on a regular basis,” Mr Sadagopan adds. However, it’s best to use a debit card for your routine expenses as you would be constrained by the amount in your savings account.
Planning billing cycle?
If the bill on the first credit card is due on January 30, then keep the second bill due date as February 15. The logic behind having a staggered billing cycle is you would get enough time to repay dues. For example, on the first credit card, the last day of the billing cycle would be January 10 and the second one would be January 25. So if you have an emergency big-ticket expense after January 10 and before January 25, then you could swipe you first card as you would get longer time to settle your bill. When the bank offers a credit card, they set a billing cycle in accordance with the issue of the card. But you have a choice to change the billing cycle to suit your convenience.
Avoiding debt trap?
If you are spending 30% of your take-home salary to pay off some debt (excluding home loans) then there is a problem. “The logic is you will be spending 30-40% of your take-home for lifestyle and other living expenses. If you spend another 30% on consumption loans, then that leaves little money for your goal management,” says Kartik Jhaveri, chartered wealth manager and director of Transcend India
Similarly, if you are unable to pay the outstanding amount on credit card statement, it’s a definite sign of trouble calling. The monthly interest rate charged on a credit card is between 3% and 4%. If you are unable to settle the balance even in the second month, the jump in the outstanding balance is very steep. Hence, in the first month itself, it makes sense to liquidate some low-yielding instrument to pay off this debt. The logic being that a FD may offer just 7-8% over a year, which is much lesser than 40-50% rate charged on a credit card on an annual basis.
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