How Many Credit Cards Should I Have?
The world record for the most credit cards is held by Manish Dhameja. In 2021, The Guiness Book of World Records documented that he had 1,638 credit cards! The average American, on the other hand, holds about 4 cards.
Credit cards come with a few benefits, right? Buy now, pay later. Earn rewards. Build your credit score.
What about the drawbacks, though? If you don’t pay your balance in full each month, you’ll be charged some of the highest interest rates of any type of debt. And who’s paying for those rewards you earn? Research indicates it’s the consumers: those paying credit card interest fees, for example. Also, those customers who are paying more for what they buy at the store because retailers have to mark up their prices to account for the fees they get charged for accepting credit cards. That’s right! The store owners pay a percentage of every sale for every credit card transaction AND the credit card user has to pay interest fees on their credit card purchases. Why are the credit card companies getting paid twice for each transaction? And why are the fees based on how much is spent instead of a flat transaction fee? Does a credit card company actually have to spend more money to execute a transaction that costs more? No, it’s all pretty automatic. So if you buy a $3 bag of candy with a credit card, the store might have to pay a $0.09 fee for accepting the card, and then you might have to pay $0.66 in interest when your payment is due. If you could charge a $15,000 car to your credit card, that could be a $450 expense to the car dealer and $3,300 extra to you in interest charges. Even though the “work” involved in the transaction is the same for the credit card company, they make far more money for the bigger transactions.
Are the measly benefits that come with credit cards worth the massive downsides? What about the risks of carrying debt in general? $1,000 per American household is spent each year on credit card interest and fees. When you subtract those fees from the rewards earned, most people are still losing money each year. And, what about the stress that comes from the burden of debt? In the moment, it might feel good to bring home something you can’t afford to purchase with cash. But, it doesn’t feel good to watch your credit card balances and finance charges increase month after month.
Credit card companies exist to make money for themselves, not make money for you. The three largest credit card companies make over $1 trillion a year! Fortunately, there is an alternative way to pay without cash and still maintain the most important benefits of carrying a card. It’s called a debit card. The best debit cards share the same security features and protection as credit cards, and allow you to pay for things online, just like their debt-carrying cousins. But, debit cards come with the huge added bonus of not racking up debt in your name. Debit cards allow you to spend the money you already have in the bank instead of obligating you to pay a company for covering your expenses plus interest. Using debit cards instead of credit cards helps people pay more attention to their finances and prevents them from going into debt and paying extra for the things they buy.
Some people worry that debit cards aren’t as safe from fraud as credit cards. The truth is, you can contact your bank to cancel unauthorized transactions made with a stolen debit card the same way you can with a credit card. You just have to pay attention to your account. The other big worry is that debit cards don’t help you build credit. That’s true. But how important is it to have a high credit score? Check out this article for more on that.
So how many credit cards should you have? The best number is 0. Research shows that people spend less money when they use debit cards than when they pay with credit. Those who save even more money are the people who pay with cash instead of a card at all. It’s just harder to let go of actual dollars in your hand than it is to swipe or tap a card. If you really want to say goodbye to your money as fast as possible, make paying easier than ever by using your phone or watch to pay for things. It doesn’t even feel like you’re losing any of those hard-earned dollars that vanish into cyberspace faster than you can blink an eye!
If, however, you’re interested in holding onto the money you worked so hard for instead of turning it over to credit card companies, schedule a meeting with a certified financial coach today.
References
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2. https://www.cnbc.com/select/how-many-credit-cards-does-the-average-american-have/
3. https://insight.kellogg.northwestern.edu/article/who-pays-generous-credit-card-rewards
5. https://consumerbankers.com/press-release/facts-matter-clearing-the-air-on-credit-card-rewards/
6. https://money.usnews.com/credit-cards/articles/biggest-us-credit-card-companies-this-year
