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Ask Dr. Don
Bankrate.com

How many credit cards?

Dear Dr. Don,
Why do you advise people that they need "two or three" credit cards? If they "need" any at all, one should be sufficient. There's no reason for more than one, especially since most people don't pay the bill in-full each month.
Kris Cardholder

Dear Kris,
There are plenty of reasons to have more than one credit card. You could have an affinity card to earn free miles for travel, but if the interest rate on that card isn't competitive you may want a second card to finance a purchase over a longer period. Another good reason: when your favorite restaurant or store doesn't accept your primary card.

Recently, thousands of credit card customers lost the use of their cards for more than a week because of a computer error. Cardholders who were traveling with just one card might have found themselves in a tight spot.

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About 40 percent of credit card users pay off their balances every month. This group finds using a credit card more convenient or more useful than paying cash. The other 60 percent are carrying a balance, and that average balance is getting bigger. It was $5,610 in 2000 vs. $4,230 in 1995.

The interest rate on the average credit card ranges from 11.75 percent to 15.44 percent, as shown in the table below. Carrying a balance on a credit card with an interest rate three times the rate that you could earn on a five-year CD doesn't make a whole lot of sense, but in a country where the national savings rate is less than 1 percent, access to credit acts as a stop-gap measure to finance fiscal emergencies both real and imagined.

Card type
Avg. fixed rate Avg. variable rate
Standard
13.64%
13.94%
Gold
15.44%
12.47%
Platinum
13.37%
11.75%

I have a lot of confidence in people's ability to make decisions that are right for them. As an advice columnist, I try to help people make better decisions, but the decisions remain theirs. That's why it's called personal finance. If you only want to carry one credit card, then that's what you should do, but having multiple cards makes financial sense for a majority of consumers.

-- Posted: Nov. 15, 2002

Read more Dr. Don columns
See Also
20 credit card company tricks
How to ask for a lower rate
Financial advice glossary
More Dr. Don stories

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30 yr fixed mtg 4.30%
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1 yr CD 0.67%
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