Spreading the Wealth

Posted by: Michael S. | Dec 15,2007


What’s the best way to keep a low balance on your credit cards?  Have a lot of credit cards.  This piece of advice could fly into the face of the advice that you should get your credit card spending under control and any one person should not carry more than three cards at once.  You can still hold to that advice, so long as you keep your spending in check.  I’ve found that the biggest problem with credit cards is not the “predatory” practices on part of the credit card companies, but the self-defeating practices on part of the cardholders.  

Just because you’ve got $3000 clear balance on a credit card does not mean that you should have license to use it.  The way that a lot of people use cards is one at a time.  They max out a card, apply for a new one, max it out, and so on.  Instead, you should be spreading out how you use the cards, rotating the cards.  This way, you’ll never amass a large balance on any one card. Keeping a low balance on credit cards is good for a couple of reasons.  One, you won’t be charged as much interest on your purchases.  Two, it’s better for a credit rating if your credit card balance is 40% of the limit.  

This 40% is your total limit for all your cards, so you need to factor in how much of a balance versus limit percentage you have for all your cards on the whole.  Just maxing out one card and moving onto another means that the next card you apply for will have a less-than-attractive interest rate, as the rate was determined by a cardholder with at least one maxed card.  

One method for rotating cards is to rotate rewards programs.  Carry one card for gas purchases, one for department store purchases, one for travel, and so on.  Determine which rewards cards you are likely to use the most.  You may be tempted to always use a travel card in order to build up travel rewards points, but I’d still advise spreading purchases on a series of cards, as it’ll make for a healthier credit rating and lower your overall debt burden.  That is if you spend wisely.  

Sponsored Resources Ads by Google