Are you carrying too much plastic?

There was a time when it was so difficult to get approved for a credit card. Back in the 1980s, access was limited to the wealthy. A decade later, middle-income earners started flashing these plastic currencies, but only after being subjected to a screening process that included the submission of a certificate of employment or a tax return or a bank statement to show how much the card applicant earned and his source of regular income.

Not anymore. Because of increased competition, one credit card can now serve as the key to obtaining more credit cards. Employees of top 1,000 companies get pre-approved credit cards in the mail with membership and first year annual fees waived. Malls teem with sales representatives promoting free credit cards – just show them a photocopy of your existing credit card and a current statement as proof of your good credit standing.

Between the two of us, my husband and I took on as many as credit cards from 10 different issuers in the last three years, many of them waiving the first year membership dues.

Responsible use

The ease in getting credit cards has not exactly been good for personal finance. While each credit card effectively increases your total credit limit or the amount you can borrow from a particular card issuer, you need some savvy and real discipline to stay out of financial trouble.

The problems with having too many credit cards are many. The first obvious problem is keeping track of all the due dates. If you succumb to promos and trends – using credit cards recommended for certain installment sales or activities like fuelling up at your favorite gas station – chances are, you’ll end up having an outstanding balance with each of your credit cards.

Credit cards normally require payment between 20 and 25 days after your statement date. If you have more than five principal credit cards, monitoring these due dates can be quite a challenge, especially if those bills can’t seem to come on time.

The second problem is the tendency to borrow too much from each of the credit cards. As such, you end up being able to pay only the minimum amount on the due date. Being a revolver or having an outstanding balance every month means you have to pay the monthly interest rate for each of the cards you hold. That can add up to quite a sum if you are not careful.

The third problem arises should you ever lose your wallet with all your active credit cards in it. Can you imagine having to call 10 issuers to have each credit card cancelled? The chance of being billed for fraudulent usage increases with each second you delay reporting the loss of your credit cards.

"We suggest you bring only the credit cards you frequently use. If you have as many as 10, there’s no need to carry all these around," said Citibank assistant vice-president Liel Gonzalez. This protects you from paying off fraudulent expenses in case of card loss.

A matter of choice

When it comes right down to it, no one really needs 10 credit cards. Choosing which credit cards to keep is basically a function of a person’s needs and spending habits or lifestyle. "If you normally spend P50,000 every month, that should tell you to get rid of those credit cards that give you a credit limit of below P50,000," said Gonzalez.

After cutting up those extra plastics, look at the rest and see how these complement your lifestyle. "If you do a lot of traveling, you would naturally want to keep an internationally-accepted credit card such as Citibank cards. You should also look at credit card products that give you value for money and privileges on your travels. A Citibank Cathay Pacific Visa, for instance, lets you earn air miles faster than any other credit card product in the market, which you can later redeem for free upgrades or free trips abroad," said Gonzalez.

Citibank Gold and Platinum cardholders also get perks when flying overseas, starting with free access to Northwest Airlines’ passenger lounges worldwide, regardless of which airline or class they fly. Charge travel expenses to your Citibank card and get free travel accident insurance of up to P10 million Then, there are discounts at various dining and shopping establishments in the Asia-Pacific region and leading hotel chains in the world.

For shopaholics, they will find value in a credit card that doubles as a discount card like the Citibank Clear, Gold or Platinum cards.

Also bear in mind that, although the first year dues are often waived, you are immediately billed the annual dues when you enter the second year. Paying membership fees for six or seven cards may not be worth the expense, especially for those cards you do not fully utilize.

Monthly interest rates are another point to consider for heavy revolvers. In such a case, the cardholder may opt to transfer the outstanding balance of one card and pay it on installment in the credit card he eventually chooses to keep. Installment rates are normally much lower than regular monthly interest rates.

At the end of the day, there is really no substitute for financial discipline. My husband and I are learning this as we cut our unnecessary plastic, starting with those credit cards we never applied for in the first place.