Weight, calorie intake, speed, spendings, we restrict many numbers in our life. However, in matters of personal finance, some of us keep multiple credit cards without their real need. You can find people with six to ten credit cards in their wallets that are hardly ever used.
At a basic level, credit cards enable a person to make payments conveniently for purchase of goods and services. Payments are made by the credit card issuers on behalf of holders of credit cards and the users repay them periodically to set off balances as per the due dates. Credit cards are acquired and used on account of their convenience but need to be used with care and spending needs to be done within limits.
They are not to be taken as alternative to loan. As such, a person typically need on or two credit cards to meet the needs of payments. But then there are aggressive credit card issuers who will provide special features to entice people to have more cards. The selling agents will pursue people to apply for cards more than they actually need. You will find the agents everywhere. Their kiosks will be found in upscale markets, malls and at airports with a team of 5-6 salesman moving around clamouring for customers.
People cite different reasons to have more cards such as:
Increase spending power
Each card comes with its own credit limits. Multiple cards can help people to have enhanced credit limits. Taking separate credit cards from different banks will collectively increase the credit limit.
For their bank-specific unique benefits
Cards may have different features. From rewards to access to lounges, cards offer giveaways that are enticing. Cobranded cards offer special benefits in the form of discounts, rewards or cashbacks with associated brands. People frequently making purchases on Amazon may like to have an extra Amazon ICICI Bank Card. Similarly, regular customers of Flipkart may like to keep a cobranded card of Axis Bank. Each bank offers several cobranded credit cards with separate values to customers. There are also many fuel cards available for purchase of Petrol.
As a status symbol
Some people may keep more cards as status symbol or to show off in the society. Some premium cards also provide lucrative freebies such as free access to airport lounges, hotel stay.
Take advantage of balance transfers
People may consolidate various balances of different credit cards and repay as per the convenience. In this manner they may reduce their interest costs if they overspend.
Improve credit scores
A low percentage of credit utilisation may improve credit scores and improve ability to get further loans in case of need. Remember, banks vie for customers who hold good credit standing.
While there are quite a few advantages to keep multiple cards, their acquisition is not free from drawbacks. Swiping indiscriminately may lead you swiping yourself into debt trap. Please remember:
Fees and other charges
Each card will come with its own fees and other charges. Fees, even if low, can cascade to a substantial amount with multiple cards, which is a waste and avoidable.
Free cards may not be really free
The issuers also provide free cards but there aren’t ever any free lunches. Cards are given free for the first year and annual fees are waved subject to achieving minimum spends. We may tend to spend extra to achieve target of minimum spends and keep cards free.
Missed Payments
With multiple cards, the chances of inadvertently missing payment due dates also increase, that can lead to hefty losses in forms of penalty and interests. Interest rates are exorbitant in case of credit cards and may vary between 30 to 40 per cent.
Falling into debt traps
Spendings not supported by commensurate income will lead to debt traps. Missed payments and defaults will also lead to losing on credit scores and our ability to generate future loans.
Endnote
Thus, the number of cards that are kept in wallet needs to be carefully planned and decided based on your needs and abilities to pay. We should not get swayed by the offers made by the selling agents as it can lead to traps. Offers are one time and can set you up with cards for a lifetime. Typically, two to three should suffice the needs. Extra cards can act as backup in case of server issues.
The number of cards to keep can be increased to meet specific needs, however, with caution. The game of reward points should not lead you to point of regret. So, next time when you are approached by a selling agent at airport, give a broad smile and try to say ‘no, thank you!’