I love cash back credit cards. Love ’em! The idea that I get a ton of money back for doing next to nothing is one of the most beautiful concepts I have heard in my entire life. I have a wallet full of cashback cards that I handle like a magician, and could tell you which cards get what percentage at what stores in my sleep.
That is why I took a particular interest in this article written by Joel from saveoutsidethebox.com he called “How many credit cards do you really need?”. In this article Joel suggests that two credit cards is the perfect number and any more than that becomes difficult to manage, an idea that has been mentioned by both Consumer Reports and on the Clark Howard radio show. Now I am a fan of Joel, Clark Howard, and Consumer Reports, but in this case, I think they all have it wrong. I believe the benefits of having several cards are significant, and I don’t really believe that having that many cards is all that much trouble.
Do more cards make you more money
To prove that more cards means more money I wanted to have some hard numbers to back up my opinions, so I headed over to mint.com and downloaded all of my credit card transactions from 2013. I separated them into the appropriate categories and calculated how much I had made in cash back rewards.
The answer was a lot when you consider how little work I had to do in order to get that cash. Do I really need all those cards, or could I have made just as much with only two cards? To answer that question I did a little work in excel and figured out how much I would have made on my various purchases with the second best card available. This figure is what I call the marginal value and is how much extra each card earns me above the recommended two.
|Types of purchases||Rewards earned||Rewards from next most valuable cards||Marginal value|
|Restaurants-Hardware stores- Office supplies||$344||$229||$115|
|All other purchases||$387||$149||$238|
So in 2013 I made over $1,100. To calculate how much more I made from having 4 cards instead of 2 I just add up the marginal value of my two least valuable cards which in my case is $218 per year. That isn’t a life changing amount of money, but it is a good amount of money to be paid considering the amount of work it requires.
Is it difficult to mange that many cards
Sure you can make more money with more cards, but does it become too difficult? Not really, no. I explored this question in depth in the article I wrote called What stuff in my shower taught me about cash back credit cards. The short answer is keep it simple and you shouldn’t have any problem.
All you have to do is get a credit card (ideally one without an annual fee) for each of your major spending categories, stay away from cards with rotating categories, and then use those cards at the right stores. It really isn’t that hard to keep your different cards straight but if your memory needs a little help now and then just do what my wife does and make yourself a little note you can carry around in your wallet. If you can manage to write yourself a note, then you can handle as many cards as your wallet can hold.
Other reasons for having more than 2 cards
As a long time player of the credit card game, I can tell you that the best credit cards never last very long. I am always on the hunt for a great credit card and jump on the best ones. The problem is that eventually the big banks figure out that they are paying you too much money and send you a letter to let you know that they are losing too much money on you so they are “upgrading” your card from the great rewards program you wanted to one that sucks.
It has happened to me over and over and over again, and I wouldn’t count on any rewards program worth a damn lasting more than a few years. (RIP Citi Driver’s Edge, Penfed Platinum Rewards, and whatever that Chase card was that gave me 5% back from Walmart) So when your bank sends you the dreaded “upgrade” letter having more than two cards will mean you have a better chance of having a backup plan already in place
I’ll give you one more reason that having more than 2 cards is a good thing, and this might be a little bit of a surprise. Having more credit cards is actually good for your credit score. This is because part of your credit score is determined by what percentage of your available credit you use each month.
Lets say you have 2 cards with a total available credit line of $6,000. If you make $2,000 in purchases in a give month then you are using 33% of your available credit, which is not a great ratio and will hurt your credit score. On the other hand, if your 4 cards have a total available credit line of $12,000 then that $2,000 balance will result in a much stronger ratio of 17% of your available credit. If you want to know more about your credit score, head over to creditkarma.com.
Picking the right cards
There are websites that calculate which cards will make you the most money, but the process is so simple you don’t need those websites. The first thing you do is decide what kind of stores you make the most purchases at. In my case I travel a lot for business and own both a house and a rental property so most of my purchases in no particular order are at grocery stores, gas stations, restaurants, hardware stores, hotels, and Target.
The next step is to find credit cards that pay you extra large cash back percentages at these types of stores, which can be done with a simple google search. Pick the right cards for you, make yourself a list to keep them straight, pay them off every month, and watch the rewards roll in.
That’s how I feel about credit cards. What do you think? What is the right number of credit cards for you?
Photo by sovietmole