Life With One Credit Card: The Benefits

A confusing web?

Over time, our finances may start to resemble a confusing web with countless threads going in all directions… Dozens of credit cards, multiple checking accounts, online savings accounts, savings bonds from childhood, brokerage accounts, your employer’s 401k plan, FSA accounts—well, you get the idea! Some account diversity or redundancy is good: if one checking account gets hit with fraudulent activity, for example, banks can move at a glacial pace to sort things out—in the meantime, you need access to your money. So it makes sense to have a second checking account somewhere. But holding too many accounts can lead to headaches, security issues and—perhaps worst of all—lost money. This is particularly true when it comes to credit cards. Photo Credit: Getty Images


The checking account model

I have two checking accounts. My primary checking account is for day-to-day use. I use it for ATM withdrawals and writing checks on occasion. I have a second checking account that I basically don’t ever touch which I maintain in case anything should go wrong with my primary account. I take the same approach to credit cards. I have only two credit cards that I consider active. I use Card 1 for day to day purchases and maintain Card 2, which I’ve had since college, should anything go wrong with the first. I don’t even carry the second in my wallet. Photo Credit: Getty Images


Keeping the college credit card

In addition to keeping it for emergencies, I keep my college credit card for credit score reasons. Although it no longer offers me a good interest rate or the best rewards, I put a few charges on it once every six months and then swiftly pay it off before I forget about it. The sporadic charges will help decrease the odds of this card getting closed due to inactivity, and maintaining a line of credit for an extended period of time helps your credit score overall. My primary spending card, Card 1, is linked to my checking account. I pay this one off in full every month, at least ideally. Close to 100% of all my spending is done on this card, for three reasons: accountability, safety, and cash-back. I no longer use any of my other credit cards. I’ve left the accounts open for credit score reasons: the larger my overall revolving credit line, the healthier my credit utilization looks. The cards themselves have been cut up and trashed so I won’t be tempted to use them in a bind. Photo Credit: The Consumerist


Accountability

When you are only using one credit card, as opposed to a huge stack of different cards most likely from different banks, it is very easy to stay on top of your purchase activity—you have plenty of time to check your activity online at least once per day. If this isn’t possible because of a hectic schedule, at the very least you can call their automated hotline once a week to review the most recent charges. Many card issuers, including Citi (Stock Quote: C) and American Express (Stock Quote: AXP), now also allow you to sign up for free daily text message alerts with your outstanding balance listed. This keeps you from splurging and greatly increases your chances of catching any fraudulent charges right away. So cut up those unwanted cards and decide on your primary spending card. Photo Credit: thetruthabout


Safety & security

If you do notice a fraudulent charge, you don’t have to sweat it—with zero liability, you can simply notify the credit card company and have them deal with it. It’s a slight inconvenience, sure, but at least the thief doesn’t have access to the actual funds in your checking or savings accounts. Once the card company freezes your account and issues you a new number, the crook is out of luck. If they had your debit card number, though, they could conceivably drain you of every last hard-earned dollar, and then some (assuming you have an overdraft protection line of credit). When credit card fraud occurs, the card company’s money is at stake, so the company has an obvious motivation to cut them off and investigate swiftly. When your debit card gets pillaged, it’s your money that’s gone. Hopefully the bank will do the right thing—but maybe they won’t. And even if they do, your funds may be frozen until everything is figured out. Photo Credit: Getty Images


Cash-back goodness

Here’s another reason I use one good credit card for all of my everyday purchases: cash-back rewards. For every $2,500 I spend, I receive a $25 cash gift card in the mail automatically. This is an effective 1% discount on everything I buy, provided I pay off the balance in full each month and do not incur any interest charges. There are now better card offers out there (such as 2% cash-back, or even 5% cash-back at select merchants), but I prefer consistency. Once you have a card that offers you satisfactory rewards, I would suggest sticking with it for a while. If you keep bouncing around, you won’t hit the minimum spending threshold to get cash-back. Many programs make you wait until you hit $2,500 or $5,000 in purchases before that first cash-back check or gift card gets sent out. Also, I’m a fan of personal finance simplicity—signing up for every new card offer that lands in your mailbox is the opposite of simplicity. It makes it that much easier to forget about a payment due date or to overlook a fraudulent charge when you have too many new accounts. Unless you are putting huge transactions on your card, does it really make sense to register for a new account only to get an extra $25 per $2,500 spent? This is something you need to decide for yourself. Photo Credit: Getty Images


VIP treatment?

This is anecdotal, but from my experience you get better service from a credit card company if you are a regular and loyal customer. This is another reason to focus your spending on only one card: get the VIP treatment. In my experience, the issuer of my primary card has been very receptive to hearing out and addressing any customer service issues associated with my account. They’re just more likely to help set things right—whether that means forgiving a recent penalty charge, boosting your credit line on short notice, or rushing you a new card when your old one gets lost or damaged. Similarly, my earlier suggestion to hold no more than two checking accounts may also lead to better treatment. Many banks offer more competitive interest rates, in addition to better features and support, when you carry a larger balance. Take, for example, Citi’s Citigold checking account—you need to have “$100,000 or more across all your linked Citi accounts” to get this for free, but the interest rate is quite good for a checking account, and the customer support is superior to that given to mere regular checking account groundlings. (Citigold has its own 24/7 toll-free number to separate you from the commoners.) Don’t have $100,000 in cash to consolidate into one checking account? Neither do I. But other banks have significantly lower thresholds for superior treatment: HSBC’s (Stock Quote: HBC) premium Plus Checking package requires a more reasonable $15,000 in combined balances. Otherwise, you’ll have to pay a monthly maintenance fee which may negate the interest you earn on your checking account balances. Photo Credit: Getty Images


How do I pay?

When it comes to paying my balance, I have a couple options and they’re all pretty simple. I have my “primary spending” credit card tied to my primary checking account: whenever I need to pay off the balance, I can either “pull” the necessary funds from my credit card’s Web site, or I can choose to “push” the funds using the free online bill pay feature my bank offers. What’s the difference? With a push payment, you don’t need to wait until the statement close date—a push payment is the equivalent of mailing in a check, so it’s processed as soon as it is received. Photo Credit: Getty Images


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