How many credit cards should I have? Credit card statistics. The number of credit cards you should have.
How many credit cards should I have? Is this a question you find yourself asking? I’m not sure if most people have an internal barometer of how many credit cards they should carry. They don’t exactly teach this in high school or in economics 101. The fact of the matter is Americans love their credit cards. The typical credit card holder has 3.5 credit cards based on data from the Federal Reserve. The typical credit card debt per household is $15,956. The most common credit cards out there are Visa, MasterCard, American Express and Discover. Paying with plastic is a good way to build your credit history but you should always be ready to pay off your balance each month. This is really the slippery slope of credit card debt. This is likely going against the human nature of people given the typical household with credit cards carries a stunning $16,000 in credit card debt. That is they are not paying off their balances. It is important you understand credit cards before asking how many credit cards I should have.
The satisfaction with various credit cards
Which cards have the highest satisfaction with customers? Based on a JD Power survey the rankings are as follows:
Source: JD Power
American Express consistently ranks amongst the top of the heap in customer satisfaction ratings. It is important to understand these distinctions because many people will build lifelong relationships with their credit card companies. Given the 3.5 average of cards Americans have, you will have options in choosing which card makes the most sense for you. You should look at fees, annual interest rates, and also amenities that they provide such as rewards. You can use cards to pay for various things like gas, food, vacations, or even paying for your taxes which are coming around the corner.
How many credit cards should I have then?
Just because people carry an average of 3.5 cards doesn’t meant that you should. The average credit card interest rate is 14.96 percent (as of March 2012). This is very high given current savings accounts are giving basically zero percent. The number of cards you have is going to be dependent on the following:
-1. What is your household income?
-2. Do you have a business?
-3. Ability to pay off balances each month
First, you need to understand how much leverage your household can take on with credit cards. The market for credit debt has tightened up recently given the current recession. When you use your credit card you are basically making a promise to pay for an item today with money earned tomorrow. Since many credit cards offer a 30 day grace period, you are basically using “free” money if you pay off your credit card balance every month.
Second, people may need separate credit cards if they run their own business for example. You might want to keep your personal and business spending separate. Having more than one credit card here is useful.
Finally, you need to know that you will be able to pay off your credit card debt each month. If you don’t you will be paying high interest and your initial purchase will be much more expensive than you think. The number of credit cards you should have varies. I don’t see why someone would need more than five credit cards for example yet I know of people with over 15! I think it is safe to say that they have way too many. In other cases some people have no credit cards and that may be too little given that our economy, for better or worse is driven by credit and credit histories. So how many credit cards should you have? The answer as most things in life depends on your unique circumstances.
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The weekly financial scoop: The philosophy of saving, cracking down on debt, and paying off student debt.
Today I’m highlighting some quality articles around the web. The theme? Save money, cut down on debt, and understand why you do what you do. I think that is probably the key aspect of today’s links. The true reason people fail to get a control of their finances is because they lack a clear sense of where they are heading. They allow the system to push them around like a ship lost at sea and wonder where time has gone by. Many people end up with more month than paycheck. The most important asset you will ever have is yourself. You are your best marketing tool, worker, and personal trainer. If you dig deep enough, you may find that your financial house needs a bit of cleaning up. This recession has caused many people to struggle financially but has also propelled many people to suddenly take an interest in all things financial.
Why do you save money? @ DINKS finance
Man vs Debt 2011 Income and Expense Report (excellent read) @ Man vs Debt
What if you could live off 50% of your pay? @ Budgets are Sexy
10 Thankless low-paying jobs that people often accept anyway @ Len Penzo
No, THIS is my final student loan payoff @ Clever Dude
How to get a promotion @ Free Money Finance
If Lady Gaga were a financial blogger @ Donna Freedman
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Is it possible to pay zero in Federal Income taxes on a $150,000 income? The answer might surprise you.
The tax system in the United States might as well seem like a foreign language to most individuals. Vague statues. Obscure language. When you examine the tax system carefully it heavily favors those with higher incomes and those who invest. The investing part is not necessarily bad since Americans need to save more given the current state of the economy. I always wonder how many people understand all the complexities of the tax system to take advantage of every option available. The tax law and code is longer than the Bible. It is also rare to take advantage of all the tax benefits since few families actually have high incomes to maximize the return. If an individual makes more than $166,000 a year this will place them in the top 5 percent of income earners. Let us examine a family that has a gross income of $150,000 from their own business and see if we can get their Federal Income tax liability down to zero dollars.
The feasibility of zero in Federal Income tax on a $150,000 income
I remember reading an article early in 2011 about modifying your income via write offs, deductions, and investment vehicles on a $150,000 gross income and getting the Federal Income tax liability down to zero. I happened to find the printed paper with notes written all over the page. The page was a mess but I decided to put all the data into an easily readable format below:
*Click to enlarge
Now let us breakdown a few of the items above:
-$43,100 from self-employed 401k plus 20% company match. As a self-employed person you can contribute on both the employee and employer side of the equation at $16,500. You can also contribute another 20% of net income as a company match bringing the total to $43,100 that can be stashed away in the self-employed 401k. Keep in mind most individuals working for a company (which is the vast majority of Americans) will only be able to reduce their income by $16,500.
-$10,000 into Traditional IRAs. Keep in mind the above scenario has both spouses putting in $5,000 each into IRAs. Most investment books would recommend putting after tax income into a Roth IRA so it can grow at full potential and won’t be subject to taxes on withdrawals. We are using the Traditional IRA above to maximize the deductions for lowering the tax basis.
-$10,000 on mortgage interest. The home mortgage interest rate deduction is still a big line item for most households. The housing crisis has definitely put this into perspective for most given that the typical family is only pulling in $50,000 and not $150,000. So the maximum benefit is rarely realized in this case given the typically priced home of $150,000 but also a lower income base rarely utilizes all these other tax benefits to their full potential.
As you can see from the above data, it is possible to reduce the Federal Income tax liability to zero on a gross income of $150,000. I remind readers that the typical US household makes $50,000 a year so realistically there is only so much they can take advantage of. At this level, many families are spending a substantial portion of their net income on housing, fuel, food, college, and other daily cost expenses.
Yet as you can see above, the major deductions that drove income the lowest were favoring those that invest. The self-employed 401k and IRAs alone reduced the tax liability by $53,100 (or more than the typical household makes).
I would be really curious to see the breakdown of how many families claim each deduction and at what income levels. The above scenario on a $150,000 income demonstrates the ability for individuals to lower their tax basis via many write offs, deductions, and expenses. The complexity of the system and overall lower household incomes make scenarios like the above rare cases but possible nonetheless.
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