Think Before you Apply for a Credit Card

If you check your mail, one item that most people are sure to see several times per month is an invitation to apply for a credit card. These offers have inundated us, whether you are a college student, a homemaker, or even a senior citizen. It seems that almost every bank and card company are in stiff competition to see who can offer their services to the most people as possible. However, before you apply for your next credit card it is important to take several things into consideration.

How Many Credit Cards are Enough?

People love to collect items that are associated with wealth and exclusivity; however one item that you shouldn't collect is a credit card. Having more than two or three can exacerbate finance issues usually due to the ease in which a person can borrow beyond their means. For instance, if a person has only two cards each with a limit of $3,000 each, the individual will most likely be able to climb out of a debt hole if both limits are maxed out. However, if you have five, six or more cards with a total limit in the tens of thousands of dollars, it is no longer easy for a person to climb out of this kind of debt hole; in fact it can usually take 5 to 10 years for a person to pay off their debts in many of these cases. And in some cases the only resolution is bankruptcy.

Having Several Credit Cards Can Have a Negative Effect on Your Credit Rating

Some financial experts suggest that having more than three credit cards may be a red flag to many creditors and thus negatively effect your rating. Lenders prefer customers with manageable debt, the more credit cards you have, the more debt you can rack up. Even if you don't use many of them, there is still a possibility that you can always start maxing them out and find yourself in debt.

Use Bank Debit Cards Instead of Credit Cards

There are much more advantageous financial tools available besides credit cards that are just as convenient. Debit cards are very similar to credit cards in that they do not require you to carry large amounts of cash around with you at all times, however they are tied directly to your bank account, which means besides a small yearly or monthly fee, there are no interest payments since you are purchasing items with your own money. Credit cards on the other hand are considered unsecured loans and each purchase you make also requires you to pay interest. This means that a purchase of $20 for a DVD, can end up costing you 50% or even 100% more in the long run after interest charges are added. It is definitely something to think about the next time you would like to purchase an impulse item.