Picture this: you’re standing in line waiting to pay for your shopping and when it’s finally your turn, you open your purse or wallet to pay. Now what happens? Do you remove the one card from your purse and pay for it in the same way you do all your transactions? Do you hover over several cards, doing a quick mental calculation of how much is left on your credit limit with each, trying to remember which PIN goes with which card and then get a shock when you receive your monthly statement?
If you answered the latter, you’re not alone. It’s not just personal debt that is rising, but the number of credit cards held by an average adult is now around four. Whilst there’s nothing wrong with having a credit card and using it wisely, you aren’t doing yourself any favours by juggling and balancing all the time.
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Think credit – think credit score
But before you reach for your scissors, you need to think carefully about how you can best manage your credit cards. Simply cutting them up and closing your accounts may make you feel as though you’ve had a burden lifted, but you need to consider your credit rating. Closing credit cards, even if you don’t use the account, can have a negative effect on your credit score, as you’re essentially reducing the length of your payment and account history. As strange as it seems, it’s best to still use each card on occasion, without racking up massive debts.
A clear balance
For your existing cards, make sure your interest rates are competitive and you have an acceptable credit limit. Then you need to keep these accounts open, paying off high-interest card balances first. Once you’ve cleared all these balances, keep using your cards every now and then to keep them ‘live’, but make sure you clear the balance every month. If you have a lot of credit cards (more than four), you would benefit from speaking to an independent financial advisor to see how you can manage your finances in the best way.
As you’re leafing your way through all the cards in your purse, the chances are you’ll pass at least one store card. Highly tempting with their money-off purchases and loyalty schemes, these can then become something of a burden when you move on to shopping at a different store. Again, the temptation is to simply open a new card at your new favourite place, but once again you need to consider your credit score. Opening a new card or cancelling your old one will have a negative impact on your credit rating. The best thing to do here is keep your old store card, using it and paying it off occasionally and resist temptation to open another.
Managing your finances is important, especially as you grow older and perhaps have more responsibilities and dependents. Keeping your credit cards in check is a great way to maintain a healthy credit score without racking up unfeasible amounts of debt.
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