Creditworthy can go awry

Yes, banks might flood you with card offers. But too many of them can spell trouble.

Credit cards have become a part of life for most individuals. Obviously, they come with benefits. However, if used wrongly, the cardholder can also land up in trouble. Huge number of cards is one reason why most cardholders face problems. People keep adding cards as getting a card is very easy, especially for those with a regular income and a good record. This is one stage where an individual has to be alert: they need to be selective in their choice of a bank, as well as the total number of cards. With six to 10 cards, even managing the details becomes a problem. Here are a few areas that need attention: a little care can make a big difference.

PAYMENT
There are several benefits touted for using multiple cards. One of the biggest is the credit period for repayment. This can be done by using the card that has just started its credit period. For example, if the billing cycle for one card is from the 1st to the 30th of the month, with the payment due date on the 15th of the next month, and for the other it is 11th of one month to 10th of the next, with the payment due on the 25th, then an expense on the 12th should be routed to the second card, where the payment will be due after 45 days.

The problem, as the number of cards multiply, is a wave of dates when the payments have to be made. Remembering the card used and then the due date is difficult, especially when there is no specific method in this usage. If there are five cards on which payments come up, say, on the 15th, 17th, 20th, 23rd and 25th of the month, making the payments is going to be more troublesome than completing the expense. There is danger of a missed payment too. If this happens, the charges in terms of the late payment and even interest could wipe out the entire benefit that might have been generated through the use of different cards. You might be potentially saving Rs 100 on getting the largest credit period but one mis-step can set you back by Rs 500-700.

BENEFITS
Multiple cards could destroy benefits that are linked to usage of available credit line. If there was a certain limit, which qualifies for additional benefits in terms of points or other preferential service from the card issuing bank, it could disappear when spread across various cards. An expense of Rs 75,000 on a card during six months can put you in a preferential category, but the same expense distributed among five cards would leave you nowhere. A small savings by using multiple credit cards could be offset by the fact that the spreading of the amount will lead to a situation where the person is not able to redeem his card points anywhere. So, if a card holder was getting 1,500 points for expense on a single card, spreading this across four cards could result in 500, 400, 300 and 300 points, respectively, which might not be enough to get any meaningful redemption gift, as most of these could be starting at 650-700 points and above. This angle has to be taken care of.

LOSS
When there are many cards held by an individual, keeping track of what is happening with these is also difficult. There are two main areas that will lead to a disadvantage for the individual. Under the first situation, if there are charges or some other details that are to be changed on the cards, it could become a paperwork nightmare. If a person has a changed telephone number, communicating this for five-six different cards and ensuring this is updated can be tiring.

Also, if one of many cards is lost, it might not come to the notice of the holder. This could lead to time going by during which there might be misuse of the card. This would be less likely if an individual held less. Keeping the number held in check ensures smoother handling.

The writer is a certified financial planner