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I was having lunch with a buddy of mine when he whipped out his foot long man wallet to pay the bill. “Whoah!” I said. “Where do you keep that thing?”

“In my man bag, of course!” he replied with pride. Todd lifted up his soft leather Bally bag that probably cost a thousand dollars. “Have a touch,” he said as he tossed it over. Todd’s bag was as supple as a baby’s bum.

The reason why Todd’s wallet is so big is because he has 10 credit cards all nicely color coordinated from top to bottom. The most prestigious cards – the black ones of course – were at the top. But as I looked closer at his collection, every credit card of his said “Preferred,” “Platinum” or “Elite.”

_{Disclosure: Financial Samurai has partnered with CardRatings for our coverage of credit card products. Financial Samurai and CardRatings may receive a commission from card issuers. Opinions, reviews, analyses & recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities.}

Temptations

One could call Todd a credit card connoisseur. “I’ve got a card for every purpose,” told mentioned proudly. “Never leave home unprepared!”

Despite what is probably hundreds of thousands in credit at his disposal, Todd still rents a one bedroom apartment and has less than $80,000 his 401(k) at 35 years old because he’s spending all his money! In fact, he admitted to having around $18,000 in revolving credit card debt spread across seven cards. At least he’s got a nice BMW 650i coupe on lease for $899 a month.

So I got to thinking, maybe the reason why Todd has so little assets for a man making six figures a year is because of temptation from all his credit cards. When there are no cookies in front of me, I never eat desert. As soon as you put out a tray of gooey white chocolate chip cookies at my disposal, it’s game over!

The Most Credit Card I’ve Ever Had

Some people are completely against credit cards because they’ve gotten themselves into debt troubles before. Alcoholics should not hang around in bars. By only using a debit card or cash, such anti-credit card users help minimize themselves from relapsing into debt. I commend their cold turkey approach, but it’s not for me.

I recommend everyone have at least one credit card to build their credit score, use as an emergency, borrow money for free for 30 days, earn rewards points, and minimize the pain of losing cash when you lose your wallet. The question is, how many credit cards is ideal for optimal financial health. Let’s discuss!

The most credit cards I ever had was between the ages of 22-24 when I had five. I thought it was so smart to open up new credit cards with 12+ month long 0% introductory APR rates, pay the minimum for the full term and then transfer the balance to another 0% APR credit card. Borrowing money for free is always a splendid thing to do when you are young, poor, and have a lot of time on your hands.

Unfortunately, there’s a point where the “spend more, save more” mentality runs out. Notably when it becomes absolutely backwards to keep spending just because the interest rate is cheap. More than anything it felt annoying to always have a revolving balance so I decided to quit with my credit card shenanigans and just focus on better spending habits.

Down To Only Two Credit Cards

From 2001 to 2013 I only had two main credit cards: 1) my American Express corporate card and a 2) Citibank ThankYou credit card because I’ve been a long time banking client. The reason why I only had two credit cards was both physical and mental. On the physical front, I can’t stand having a thick wallet. The wallet is always in my right butt pocket for all you pickpockets out there and it’s uncomfortable to sit down when things are uneven. The second reason for having only two credit cards is due to record keeping.

By only having one personal card, I was able to comfortably keep track of all my expenses online and make sure I was not going over budget. For example, if I had a $2,000 a month credit card budget, I didn’t have to stay on top of numerous credit card balances. My expenses for the month were essentially my credit card bill + the amount of cash withdrawn from my checking account. Having one credit card made it much easier to SAVE money.

Now that I have a third credit card to earn points for travel, I’ve got to be a little more diligent about my spending. With a 0% introductory APR, 40,000 bonus points, and the first year’s fee waived, I’m reminded of the times when I had multiple credit cards once again. Now I’m tempted to take advantage of new credit card offers with bonus points. It feels a little like going into relapse!

Just imagine, if I can earn 40,000 rewards points just by signing up and use a credit card to buy a $100,000 Range Rover to earn a total of 240,000 points, why wouldn’t I? That’s five or six round-trip flights from San Francisco to Hawaii. Unfortunately, car dealerships usually only allow for a maximum of $3,000 to be charged due to fees they have to pay which cuts into their margins.

The Biggest Risks To Having Multiple Credit Cards

I’m a big advocate of less is more when it comes to credit cards. Let me explain why I recommend keeping the number of credit cards you have to three or less.

1) More Credit Cards = More Temptation To Spend

If you have a budget of $1,000 a month to spend on your credit card(s), it’s much easier to limit spending on one card compared to limiting spending with five cards.

Your mind automatically starts thinking about the various custom rewards points for each card and you charge accordingly just a little more than you should. If you charge even $100 more on average between your five credit cards, you’ve gone 5% over budget for the month.

Compound the over budget amount over the year and just like that you’ve got $1,200 more in credit card expenses or debt that needs to be paid off. We can’t help but think of each credit card as one powerful spending tool with its own APR rate, fantastic benefits, and multi-thousand dollar credit limits.

Derivative Explanation: I threw a potluck at my house for 20 confirmed guests one year. One of my good friends said she’d make enough spaghetti for 20 people. I told her to just make full portions enough for five people. She looked at me stubbornly and said, “Well what about the other 15 guests?” I proceeded to explain to her that if all 20 guests made enough full-size portions for 20 people we’d have enough to feed 400 people! She didn’t get it and insisted to bring massive pots of sauce and pasta. At the end of the party, she had to lug both massive pots still full of pasta and sauce home. The lesson here is that we get confused with how much we can spend the more spending vehicles we have.

2) Incremental Rewards Diminish

Unless you are a billionaire, you only have so much money to spend a month. Let’s say your budget is $3,000 a month and you go from one rewards credit card to three rewards credit cards: one for travel, one for entertainment, and another for online shopping.

You must now calculate the incremental rewards you’ll earn, given you would have received rewards if you put everything on your one and only credit card anyway. Once you calculate the incremental rewards received, you realize the benefits aren’t that much at all since you are not spending 3X more by have 3X more cards. And if you are spending above your $3,000 budget that’s no good either.

Derivative Explanation: One friend started bragging about how his investment portfolio was up 18% in 2013. That’s a great return for anyone, but guess what? The S&P 500 index is up 18% as well! In other words, my friend created no alpha. All the time he spend researching and picking stocks was a waste since he could have just bought the S&P 500 ETF SPY and kicked back all year. To maximize your rewards from each card you’ve got to meticulously deploy your usage. Otherwise, you’re weighing down your finances with distractions. Real investors create alpha. Otherwise, you’re just a saver. Read: Are You A Real Investor If You Create No Alpha?)

3) Higher Chance Of Getting Into Debt

Credit cards have the highest interest rates for mass consumer lending other than payday loans. With the 10-year interest rate at 3%, the average credit card interest rate is roughly 15%. A 5X spread is enormous! No wonder why millions of credit cards are issued annually.

When you have more temptation to spend with more credit cards in your wallet, you will inevitably increase your chance of accumulating credit card debt. Just like how we don’t bring alcoholics to bars, we shouldn’t arm consumers who have a proclivity to overindulge on anything with more credit cards. Undisciplined spending and high interest rates compounded over time have a devastating effect on your wealth. (Read: The Reality Of How People Get Into Debt – It Just Creeps Up!)

Derivative Explanation: There’s a great study that showed a 30% increase in spending per customer once McDonald’s started accepting credit cards. One frugal friend I know went from buying two $1 McDoubles for lunch twice a week in cash to buying two $4 Filet O’Fish sandwiches and a large Coke three times a week for the next two years. He no longer plays singles because he went from a svelte 165 lbs to 200 lbs and admitted he’s got revolving credit card debt attributed to his fast food addiction.

4) Burden On Your Credit Score

We learned in my article on how to get a 800 credit score or higher that the Amount Owed accounts for 30% of your credit score calculation, while New Credit accounts for 10% of your credit score calculation.

Nobody knows exactly how many credit cards is too many, but one can imagine that after five credit cards, opening up another credit card at the margin will likely hurt your credit score, or at least not help your credit score. Sure there are plenty of examples of people who have eight credit cards and still have good credit scores. But perhaps they would have even better credit scores if they only had three credit cards.

Derivative Explanation: After three gin and tonics, I’m feeling good. After 10 gin and tonics, please dial 911 and pump my stomach before I die.

Focus On Bigger Picture Financials

Applying for multiple credit cards all the time is an unhealthy use of time. It’s like the person who always focuses on the emergency fund and not on ways to make more money. They never take their personal finances higher because they’re focused on kindergarten basics.

Everyone should have at least one rewards card given the benefits of travel insurance, rewards points, ease of use, and free interest for 30 days. My Citicard of nine years is now gathering dust given I want double points on everything with my Barclaycard. If I didn’t have a business, I wouldn’t have a third credit card. However many credit cards you have, be careful not to get caught in a negative debt cycle or damage your credit score.

Spend your efforts instead on building passive income streams and making more money. If you don’t have a highly addictive personality, one to three credit cards is the ideal number for optimal financial health!

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Looking for an awesome travel rewards credit card? Explore the top rated travel rewards credit cards today. The Chase Sapphire Preferred card is one of my favorites. It comes with a lot of benefits and rewards such as no foreign transaction fees, travel and purchase protections, and 60,000 rewards points after you make $4k in purchases in the first 3 months of account opening. That’s a $750 value in travel rewards right there! Check out my full review to learn more.

Updated for 2020 and beyond.

_{Disclosure: Financial Samurai has partnered with CardRatings for our coverage of credit card products. Financial Samurai and CardRatings may receive a commission from card issuers. Opinions, reviews, analyses & recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities. Responses are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser’s responsibility to ensure all posts and/or questions are answered.}