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Expert Answers on Credit Card Debt and How Many Credit Cards You Should Have

Ask the Experts – March 2019

A lot of people hesitate to discuss money. For some, it’s seen as impolite. For others, they just think that money is a private matter. Other people are hesitant to discuss money because they’re worried about saying something wrong or appearing to be uninformed. Whatever the reasons, many consider money topics to be conversations that you just do not have.

However, talking about money helps you learn. When you discuss money, you discover information, details, and strategies that can help you make better financial decisions and put you in a stronger situation money-wise.

This is why, every month, our financial experts answer money and finance questions. If you have a question for our team, ask us online on FacebookTwitter or through our website.

The questions here have been condensed or rewritten for clarity and simplicity.

How can I pay less interest on my credit card debt?

If you have a lot of credit card debt, and you’re not able to pay off your bills in full each month, you could find yourself paying a lot in interest payments. Over time, these costs add up, making it very difficult to repay your debt.

One way that you could potentially pay less interest on your credit card debt is to simply contact the credit card company and ask them. If you explain that you’re having trouble making your payments and that lowering the interest rate could help you, they may be willing to give you a reduced rate. It might not help, but it’s worth a try.

Another option is to consolidate your debts into the credit card that has the lowest interest rate. This would involve paying off all of your cards with the one that charges the least interest. You’ll effectively reduce the amount you’re paying in interest this way. You could also potentially get a new loan with a lower overall interest rate and use this loan to repay your debt, but you could find it difficult to get a new loan with a favourable rate, especially if you have bad credit.

Also, it’s important to remember that even if you are able to reduce the amount you pay in interest, you’ll still have to pay the same amount of debt back.

How many credit cards should I have?

This question can be a tough one to answer as every financial situation is different. There isn’t a “magic number” which is right for everyone. However, there are a couple issues with having more credit cards than you need. The main one is that, if you have a lot of credit cards, the temptation to spend will always exist. Another potential issue is that multiple cards can be hard to manage. You could find yourself struggling to remember which bills are due when, and you might wind up paying a lot of monthly fees.

In addition, opening a lot of new cards could potentially hurt your credit score. How? Because lenders know that when you have more cards, you’ll be more likely to spend, and this could lead to you maxing yourself out.

However, that doesn’t mean you should close down a bunch of credit cards immediately. Your credit history matters a lot when it comes to your credit score, and if you close an account with a long history, you remove this history from your credit report.

Closing an account could also negatively affect your credit utilization. Lenders like to see that you’re able to borrow a reasonable amount of money, but not too much. One way they determine this is by looking at how much of your available credit you are using, this is called “credit utilization.” For instance, if you have one credit card with a $1000 limit and you owe $500 on this card, you’re using 50% of your available credit. However, if you have three cards with a total limit of $5000 and you owe $500, you’re only using 10% of the credit available. In general, lenders prefer those who are using less than 30% of the credit available to them.

What this means is that the right number of credit cards will depend on you. If you can maintain a credit utilization rate of less than 30%, manage your payments, and avoid overspending, you’ll be in a good situation no matter how many cards you have. Look at your overall financial situation and your lifestyle and use this information to determine how many credit cards make sense for you.

If you’re curious about what most Canadians have, the average number of credit cards per Canadian adult is about 2.2.