January 19,2009
-
Trimming your Credit Card Collection, Pt.4 –
– The profitable model.You want to reduce maintenance: As mentioned in the first article of this series, sometimes too many credit card accounts are just too much to keep track of. It's wise to reduce financial confusion. It's easy to lose track of how much debt you're really in. It's easy to miss a credit card payment when you've got nine to keep track of (very bad, too). Most people don't need more than three credit card accounts although, the natural tendency is to keep accepting good deals as they come without ‘cleaning out the closet' (I currently have 34 open accounts, all in good standing, though I only use three of them).
Three are good, not only for redundancy but, because they can each serve unique and valuable purposes. One purpose is for ‘Credit History'. Keep your first (‘oldest') credit card active even it you only use it once every six months. Keep your second (‘best deal') credit card active for whatever benefits it offers (low interest, high spending limit, rewards points, etc.)
Keep a third card (‘cash cow') running which will hold past debt as you ‘migrate' that debt by placing your newest charges to you new low-interest card. Set aside the cash that would have been used in lieu of those new card purchases on the ‘best deal' card and start paying off the ‘cash cow' account. The next time you get a better deal, consider retiring (closing) the ‘cash cow' credit card (after it's paid off) and relegating the former ‘good deal' card to becoming the ‘cash cow' replacement.
These have been just a few of the considerations to keep in mind when you finally decide it's time to trim the credit card tree. For one more (deeper) consideration, please refer to the news article entitled: "Credit Card ‘Ballpark Rules'".