Are four credit cards better than three?

Q&A: Dominic Coyle answers your personal finance questions

If the option exists to reduce four to three, it seems sensible to do this. Photograph: Getty Images

If the option exists to reduce four to three, it seems sensible to do this. Photograph: Getty Images

 

I have four credit cards and am wondering is it worthwhile reducing to three and, if so, what is the best way to spread the statement dates? One statement date is the 6th, one is the 14th and one is the 25th. The new card is the 3rd.

I have the option to balance transfer the card with statement date of the 25th to the new card for 0 per cent for 12 months and am tempted to do that.

It would leave me with three cards, two with balances that I pay on time each month and the third one which would have the balance transfer, giving me a year to pay it off.

Mr D.L., email

For a time, it was fashionable to have a wallet full of credit cards, all neatly organised so that one could pay off the other in a circular pattern that rarely did much to address outstanding balances.

The financial crash put an end to most of that. In general, the people using the multiple cards were those who were financially stressed in the first place. The crash tipped many over the financial precipice.

There can, of course, be good reasons to operate different credit cards, not least to separate domestic and business spending, or to organise spending with regard to different businesses.

But, for most people, the fewer credit cards the better. More importantly, everyone should be trying to pay off not just the minimum balance at the end of each month but the full amount.

This is especially the case in “good” economic times when work and income are relatively plentiful. Otherwise, you are essentially living beyond your means and could find yourself in a financial pinch if recession returns or ill-health strikes, affecting your income-earning potential.

It is not clear from your query how you are managing these accounts. You say the balances on two of them are paid on time each month. Does that mean they are being cleared in full each month or just that repayments are made in accordance with the minimum terms and conditions of the contract on the cards? Clearly, there is a balance on the third card, as you are talking about transferring this.

Keeping a handle on debt can be a challenge when young families and hefty mortgages or rental commitments conspire to put a squeeze on even the best organised finances but, in general, the target should always be not to borrow on credit cards.

Personal circumstances

The interest rates alone should tell you why. It is about the most expensive money you can borrow outside of registered moneylenders. If it appears that you are going to have to maintain a credit card debt over a sustained period, you should really be looking at the possibility of converting it into a term loan. The interest rate will inevitably be lower.

Clearly I don’t know your personal circumstances, nor the logic for holding multiple credit cards, but the general principle applies.

So what then to do with these four cards?

Yes, if the option exists to reduce four to three, it seems sensible to do this. The fact that the fourth, new card will give you a 12-month interest-free period only enhances the argument for doing so.

Apart from anything else, the absence of interest might allow you to pay off any debt balance more quickly, saving you money in the longer run on interest charges.

Of course, when juggling cards, repayment dates can be an issue. As it stands, your repayments are due on the 6th, the 14th and the 25th – fairly evenly spread across the month. The new card, albeit with zero interest, will require payment on the 3rd of the month which certainly could impact cash flow issues at the start of the month.

For people in employment via a PAYE system, payment is generally monthly and on or around the last banking day of the month. In those circumstances, it makes sense for debt commitments to be paid early in the month while there are still funds in the account.

A payment date around the 25th is close to the end of most people’s financial period and precisely at a time when there might not be enough in one’s account to meet the repayment. Failure to meet repayments – especially if it happens on a recurring basis, can adversely impact your credit score. That could create problems down the line, both with these cards and with any other funding you sought to access for a new car, a holiday loan or whatever.

On that basis, moving your repayment date from the 25th to the 3rd seems sensible if you are in a PAYE situation. If, however, you are self-employed with income spread reasonably smoothly across the month, you could find yourself in a pinch in week one of the month – and the same credit issues would arise for missed payments.

So, grab the zero per cent window if you can, make sure changing the repayment dates work for your cash flow and, unless you have good reason to do otherwise, try to rationalise back towards a single credit card over time.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice.

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