Credit card companies are really good at getting people to apply for credit cards. They throw on all these bells and whistles to entice you – cash back, rewards systems, points, special bonus schedules and sign-up bonuses. Who doesn't want a little cash back? Who doesn't like bonuses?
You should avoid falling prey to the marketing. If you want to save money and if you want to take control of your finances once and for all, you don't need a dozen credit cards.
You don't even need a handful. You need, at most, two.
Keep it simple
The problem with having a dozen credit cards with different reward schedules is that there’s no way you can remember which card offers which rewards. You can download apps, you can write the schedule on the card (unless it changes) and you can try all the tricks in the world – it won't help.
You've made it too complicated.
Trim it down to just two cards. Use one general purpose card (one that might give you rewards on everything) and then pick one that gives you a higher percentage at retailers you commonly shop at. Or if you eat out a lot, look for a card that gives you extra perks at restaurants.
By sticking with two cards, you can skip leaving notes on the cards and the phone apps. You won't forget which card to use when.
Complexity creates confusion
Have you ever missed a credit card payment? If you have then you know it hurts. How many credit card bills do you get each month? If you have seven cards, you'll get seven bills. And the more bills, the easier it is to miss one in the mail or not see the statement alert in your email inbox.
Missing a payment can have a negative impact on your finances. First, you'll get slapped with a late or missed payment fee. Next, the interest rate on your credit card will likely go up significantly. If that's not enough, you'll take a hit to your credit score, which will make loans a lot more expensive, if you can get one in the first place.
That 1 percent in rewards can be negated in an instant. Is it really worth jumping through all those hoops?
Calculate how much you lose
Try this little exercise: Calculate how much in rewards you'd lose if you put all of your purchases on a single card.
You may be surprised by the answer.
When I did this, I learned I would give up about $100 in rewards over the course of a year. That's a single percent on $10,000 of spending (instead of 2 percent on purchases in a particular category, I was getting 1 percent). One hundred dollars is not a small amount of money, but I was willing to give up $100 to go from using four cards to just two.
In return for giving up $100, I didn't have to log into four credit card online accounts, and I didn't have to spend as much time wondering which card to use – it was a choice between two.
More importantly, by going down to two cards, my wife and I never have to talk about which credit card to use for certain purchases, and we'll no longer get upset if one of us accidently uses the wrong one. It made our finances simpler and our marriage happier – that was a fantastic unintended consequence!
Jim Wang is an entrepreneur, who founded Microblogger.com. For actionable advice on how to build your own business, join his free newsletter.