Credit Card Quick

When to say When: How many Credit Cards are too Many?

Credit Score

The art of obtaining a good credit score can be quite tricky. You must have credit cards in order to build a strong credit history, but too many credit cards can lower your score. You have to apply for a credit card in order to be approved, but applying for too many credit cards can lower your credit score. You must spend on those credit cards in order to build a credit history, but too much spending can lower your credit score. Hmmm. Confused? You’re not alone!

If you are a credit card holder, you may be wondering if you have too many credit cards and if they will affect your credit score, either positively or negatively. Although it would be nice to have a definitive answer, the fact of the matter is that the right number of credit cards will be different for everyone.

However, there are a few ways you can examine your personal financial situation to determine if you have achieved a happy medium between not enough credit and too much credit:

• Review your current credit card situation – Are you currently able to handle the credit cards in your wallet? What are the finance charges and are those finance charges reasonable?
• Reexamine your ability to manage all of your cards – Are any of your current credit cards maxed out? How much credit do you have left on your cards (the credit reporting agencies will often lower your credit if your balance exceeds 30 percent of your limit)? Have you been late paying on any of your cards in the past six months? Do you often feel overwhelmed by your debt?
• Consider whether consolidating or canceling credit cards is right for you – Although most financial experts will encourage you to keep your credit cards open (even if you don’t spend on them) so that your available credit will raise your credit score instead of lowering it. However, if you feel like you will overspend on your credit cards, it is best to close the account. The small ding on your credit report will certainly be offset by the temptation you eliminate by canceling the card.
• Reexamine your spending lifestyle – If you are a good credit card holder, a credit card can easily raise your credit score and allow you to benefit from it; however, reckless, careless spending often has the opposite effect, so always take into consideration your personal financial spending situation and spending habits.

Your Guide to Getting the Best Credit Card in your Wallet

Choosing Credit Card

If you’re like most credit card holders, your goal is to get a credit card with the lowest interest rate and the most perks. However, how do you begin to find the perfect credit card?

Well, it is best to start your search online, as many websites will compare credit cards, side by side, according to their APR, annual fee, terms and conditions, and perks. This will give you a broader picture of what types of credit cards may be available to you and what you can expect in terms of APR and promotional rates.

However, beyond that, here are some tips that will help you score the credit card that best fits your lifestyle and your budget:

• Chuck the annual fees – There is simply no reason to pay an annual fee for a credit card anymore, unless of course you are involved in an advantageous rewards program. But for most credit card holders, it just doesn’t make sense to fork over an annual fee for a credit card.
• Think “fixed” in terms of interest rates – You may find a credit card with a fantastic, variable interest rate, but beware that this interest rate can shoot up at any given time. The new credit card legislation has clear boundaries for creditors when it comes to raising interest rates on fixed-rate cards, but variable-rate cards are still fair game. No matter how attractive the offer seems for a variable rate credit card, your best bet is to find a card with a low, fixed interest rate.
• Don’t get pulled in by an attractive introductory rate – Introductory rates, which are often as low as 0 percent, may seem like a great deal. However, introductory rates are just that – introductory – which means that after the introductory period has ended your interest rate can shoot up to very high levels.
• Pass up rewards programs (most of the time) – For the average credit card user, rewards programs are just not beneficial. However, if you are a big spender, and you pay off your card in full each month, a rewards credit card may be worth it.

Borrowing from your Home’s Equity to Pay off Credit Card Debt

Credit Card Debt

Many credit card holders, particularly in this tough economy, are finding themselves in over their heads with credit card debt. Many homeowners may be tempted to use the equity in their home to pay off this debt. But is this the right choice for you?

Refinancing your Home

Many consumers choose to refinance their homes in an attempt to pay off crippling credit card debt. If you have enough equity in your home to completely pay off your credit card debt, then going this route may be an option for you. Refinancing your debt into your home loan can lessen the burden of paying several bills each month; instead, all of the debt is rolled into a single mortgage payment.

Although using the equity in your home to refinance your home and pay off your credit cards may be the sensible choice for many homeowners, it is not without its disadvantages.

First, refinancing a mortgage typically involves closing costs, which can total several thousand dollars. Although many lenders will roll closing costs back into the mortgage, you must still pay them. Another disadvantage to using your home to pay off your credit card debt is that, unlike credit card bills, you can lose your home if you default on the loan because your home serves as collateral for the mortgage.

Obtaining a Home Equity Loan or Line of Credit

Another option for paying off your credit card debt with your home’s equity is to take out a home equity loan or line of credit. Closing costs for home equity loans are generally much lower than closing costs for refinancing.  However, the interest rate for a home equity will usually be higher than a typical home loan. For many consumers, the higher interest paid on a home equity loan, however, is still lower than the interest rates on their credit cards.

It is important to understand that a home equity loan or refinance can serve as smart financial tools when you simply want to pay off your credit card debt using your home’s equity. They may also be a better financial choice, as the payment for a refinance or home equity loan will typically be much lower than credit card minimum payments because the loan is extended over 20 or 30 years.

Credit Card Cash Advances: The Good, the Bad and the Ugly

Credit Card Debt

First, the good news: cash advances are a smart tool to have in your back pocket in an emergency situation. Now, the not-so-good news: cash advances come with upfront fees and high interest rates.

For example, you find yourself stranded out of town and in need of car repairs. Your short on cash and the repair shop doesn’t accept credit cards. What do you do?

If you are a credit card holder and you have access to an ATM, you may be able to use your credit card to get quick cash. Although the fees and the high interest rate are not in your favor, you recognize that the situation needs to be resolved.

In this instance, it is easy to see the advantages of using a credit card for a cash advance. However, many consumers have overused and abused credit card cash advances and have therefore found themselves in a mountain of unexpected credit card debt.

What you Need to Know:

• Cash advances have no grace period. In other words, you begin to accrue interest charges the moment you withdraw the money.
• The interest rate charged by credit card companies for cash advances is often much higher than the card holder’s interest rate for purchases. In fact, many credit card companies charge as much as 20 to 25 percent for a cash advance. Compare that with the typical 12 to 15 percent charged by most credit card companies for purchases and you can easily see how quickly the cost of cash advances can add up.
• Fees for cash advances can be outrageous, to say the least. Fees are generally calculated on a percentage of the cash advance taken (usually one to four percent), or are simply charged as a flat fee. Flat fees are not based on the amount of the cash advance and therefore remain consistent from one cash advance to the next.

It is also not uncommon for credit card companies to charge consumers both a flat fee, as well as a percentage of the cash advance taken. For example, the credit card company may choose to charge a flat fee of $10 for every cash advance, and then also charge a percentage of the cash advance itself.

• If you take a cash advance through an ATM, be prepared to also pay a fee charged by the financial institution that owns the ATM.

What you Need to Know about Balance Transfers

Credit Card Debt

Balance transfers are often used by credit card holders in an effort to obtain lower interest rates on existing balances.

You have no doubt received an offer from a credit card company enticing you with lower interest rates on transferred balances. Are these offers worth it? Do they actually save you money? What are the catches? Below are several factors to consider.

• Pay attention to the terms of the balance transfer, particularly whether the advertised interest rates applies to just the balance transfer, or to purchases, as well. Some credit card companies offer the promotional interest rate to balance transfers only, and instead charge a much higher interest rate on purchases.
• Pay attention to transaction fees, as they can be significant, particularly when transferring high balances. In fact, some transaction fees can be as high as four percent of the balance transfer rate, or $40 per every $1,000 your transfer.
• Pay attention to the duration of the promotional, or “teaser” balance transfer rate. Most credit card companies offer their balance transfer rates for a set period of time (usually six months to a year). Afterward, the rate can jump significantly, leaving you with high interest payments unless you transfer your balance again to a new card. Before you transfer your credit card balances to a new card, you may want to make sure you are able to pay off the balance during the promotional interest rate time period.
• Pay attention to your monthly payments and make it a priority to pay your bill on time and in full every month. Many credit card companies are now penalizing credit card holders for just one missed or tardy payment. This can result in a termination of your transfer balance interest rate and a jump in your annual percentage rate.
• Pay attention to your old cards when transferring their balances to a new card. To protect your credit, you should pay close attention to your old cards by making the payments until the balance transfer is complete and by verifying that the balances are paid in full. The best rule of thumb is to continue to make payments on your old cards until you receive a bill with a zero balance.