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Can Credit Cards Be Good For Your Finances?

by Mike

This is a guest post from the folks at MoneySuperMarket.com

Pete D’Arruda caused a storm recently when he told of his experiences managing 25 charge cards, totalling over $250,000 of available credit and reaping in the rewards while he did it. But is his approach inspirational – or dangerous?

D’Arruda admitted to having around 25 Mastercard, Visa and Amex cards, alongside individual gas, store and airline cards, with an average credit availability of $12k a card.

A personal finance consultant, he began his effort to build his credit rating and reap the advantages and rewards available. Also an author of three personal finance books, his theory was to test the ‘more is better’ approach of credit card ownership.

His hypothesis was that the more available credit and cards that one person had, the better their credit score, assuming, of course, that they paid their bills on time.

D’Arruda’s credit score is in the high 810 plus range, so he’s clearly working the system well. However, credit experts have warned that his approach is at best unecessary and at worst, setting a dangerous example to others.

D’Arruda agrees that his approach has only worked because of his exceptional organisational skills. He charges everything to his credit cards, but pays everything promptly, with very few outstanding balances.

He explains too that by putting every charge through on the ‘best’ card, he’s accrued thousands of airmiles, discounts, points and freebies for retailers, vacations, flights and more, effectively being paid to manage his credit well.

His advice for anyone wishing to follow in his footsteps falls into three categories. Firstly, paying bills on time, or even twice a month in two sections, so balances are kept in order.

Secondly, utilization rate is key – it’s basically your debt to available credit ratio and it should be no more than 30%, or creditors get twitchy. The best rate is around 10%.

Finally, keep an eye on your credit mix – handle all your credit and loans with the same rigour. That goes for mortgages, student loans, personal debts and other types of credit.

For the rest of us then, the question remains. Is it sensible to use credit cards in such a way, to your advantage? Or is it the quick way to financial ruin.

The important part of that phrase is of course the ‘to your advantage’, as most of us quite simply don’t have the willpower or incredible organization required to match Mr D’Arruda’s feat. For those without iron wills and exceptional discipline, a single low rate balance transfer card may be a better solution.

Go to moneysupermarket.com to see the latest range of best buys and then look to transfer over expensive outstanding credit and charge card balances.

Zero percent APR cards may be available, or, if you’re unlikely to clear the balance within the promotional period, a low ‘life of balance’ card may be the better option.

Ultimately credit should be respected and for anyone with a less than perfect history, the focus should be on managing existing debts, along with getting financial discipline in place.

In conclusion, leave high risk approaches to those with the time, energy and know-how to manage them. For now, focus on the fundamentals: a good budget, a plan and spending less than you earn.

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Ryo

Nice article, does it say how much he was spending a month. If his debt to credit ratio is 10% on all cards does that mean his spending $1200 per card, a total of $30k a month?

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