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3 Reasons Why You Don't Need Another Credit Card

3 Reasons Why You Don't Need Another Credit Card
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By Friday, 16 March 2018 08:18 AM Current | Bio | Archive

We all know the reasons for getting a credit card: travel points, hotel benefits, purchase protection, cash back, building a credit history—the list goes on. Maybe that's why the average person has two or more credit cards.

But what works for one individual might not work for another. Those who use credit cards owe an average of $5,700. Credit cards are ultimately debt tools—and unless you've consistently displayed an ability to manage your debt within a realistic budget, you aren't ready to add more credit cards to fatten an already-thick wallet.

The temptation is strong. New credit cards come with bonus offers and promises of great cash-back deals. But not everyone's personal finance priorities are the same. For some, a credit card can feel like a curse rather than a blessing. With that in mind, here are a few reasons you don't need another credit card.

There's a Psychological Effect of Having More Money to Spend

When a credit card company sends you a spiffy new card in the mail and tells you that you now have access to thousands of dollars, it's tempting to look at this money as new leverage. And it is. But a credit card's limit only tells you how much debt you can acquire—not how much you can pay off.

The simple truth, according to research, is that credit cards tempt you, making it easier to spend money. A series of experiments in the 1980s even found more people are willing to spend money simply by seeing a familiar credit card logo displayed next to a product or charity display. A more recent, updated study found that the same psychological principles still hold true.

If your goal is to trim your budget, a new credit card will have the opposite effect: It will supply you with a means to buy new things. And since you never see the cash change hands, it's easier to let go of money (that could otherwise go toward paying off debt) than it is to fork over tangible cash.

You'll Add Complexity to a Complex Monthly Equation

Your monthly budget is easier to manage when it's simple. Throwing another credit card into the mix means you risk upending that balance. A new credit card means new logins to remember, new expenses to track and new parts of your identity to protect.

It's true that in some cases, this is a disadvantage offset by the advantages of holding another credit card. For example, having a higher ratio of credit to debt generally boosts your credit score.

But don't forget that adding a new credit card to your wallet can actually temporarily dent your credit score as well—and that's without you even accruing debt. That's because a new credit account will lower the average age of your credit accounts.

More Credit Gives You More Capacity for Debt

According to the Federal Reserve, credit card debt in the U.S. has reached over $1 trillion. This level of debt wouldn't exist if people could responsibly manage several credit cards. For most consumers, it's vital to first get out of debt and pay off current credit card balances in full each month before adding a new card to their personal finance system.

For those who believe they can pay off this debt using a future bonus or debt consolidation strategy, consider this: The more debt you have, the more interest accrues. If you buy more with your credit card than you're able to immediately pay off, the interest starts adding up.

If you have personal debts and are still struggling to maintain a budget, a new credit card isn't the answer for your problems. Only consider a new credit card once you've paid down credit card debt and you've shown a consistent ability to meet a monthly budget.

Maxime Rieman is Product Manager at ValuePenguin. Educating and assisting shoppers about financial products has been Rieman's focus, which led her to joining ValuePenguin, a consumer research and advice company based in New York. Previously, she was product marketing director at CoverWallet and launched the personal insurance team at NerdWallet.

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MaximeRieman
If you have personal debts and are still struggling to maintain a budget, a new credit card isn't the answer for your problems. Only consider a new credit card once you've paid down credit card debt and you've shown a consistent ability to meet a monthly budget.
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2018-18-16
Friday, 16 March 2018 08:18 AM
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