My starting figure is three. You need a Visa or Mastercard for everyday use. You need an American Express card, because there is always someplace that does not accept Visa and Mastercard. And you need a second Visa or Mastercard to use in an emergency. Let me be clear that the sort of emergency I envision is not a great shoe sale at Nordstrom, but rather occurs when your everyday card has been lost, stolen or otherwise compromised. Most issuers take five to ten days to create a new card and mail it to you at your billing address. Unless your spare card is in your hotel room safe, you might have a serious problem if, for instance, you are mugged on New Years’ Day in a foreign country. That happened to me, but I was doubly fortunate. I had brought the spare card, and the loss occurred in a major European capital where the local office of American Express was able to issue me a temporary card within a few hours. Don’t count on that working as well in Brno, Cuzco or Alice Springs.

One justification for additional cards is if you are self-employed and want to use different cards for business charges and for personal ones. As an income-tax preparer, I think this is a great idea since it will help demonstrate the deductibility of expenses on the business card should you ever be audited by the Internal Revenue Service. But it does have a down side. Most issuers of airline-affiliated cards will not attach two different card accounts to the same frequent-flyer account. Many people (myself included) count on those miles to feed our travel cravings, so I don’t insist on that separation.

Mad Money

Another reason for having additional cards in your sock drawer is to have credit readily available when you need it. I’m not unalterably opposed to credit card debt. Used wisely, it can be a great means of financing significant expenditures—a new computer, or demo CD, or honeymoon. However, “used wisely” means with a realistic repayment plan. Let me repeat: realistic. For too many people, having the available credit is like keeping chocolate in the house. You swear you won’t get into it, but the will power is just slightly lacking.

So again, how many cards have you? And how many have balances?

Credit card balances carried from month-to-month are the second largest form of consumer debt in America, behind home mortgages but well ahead of car loans and student loans. Unlike those others, credit cards almost always carry variable interest rates. Interest rates are now rising generally, and I wonder how many people understand what this can do to their monthly payments. Today’s prime rate is 4.75 percent. In 1980-1981, the prime rate exploded upwards, hitting a peak of 21.5 percent in December, 1980, and staying above 10 percent till 1985. Interest rates are not fully within the control of Alan Greenspan; the size of the federal deficit and economic and political events around the world have a substantial effect.

This should be a special warning to those of you who manage your debt by “surfing” special credit card offers: no or negligible interest for six months to a year on this card, then using the next similar promotion to transfer the balance when that expires. What happens when you cannot find a place to transfer a balance and have to pay market rates? The volume of these promotional offers has already dropped. If you can still find an offer fixing the rate for the life of a balance, grab it.

Who Do You Owe?

Visa and Mastercard do not issue cards themselves. They are umbrella organizations, licensing the name and providing services to a vast array of financial institutions. Does it matter which issuer you use? Maybe. Obviously, if you’re carrying a balance, interest rate matters a lot. But there are other considerations. There are a few giants—Citibank, MBNA, Chase (which includes the former Bank One)—and a number of smaller issuers. Many of the smaller issuers go after a particular niche such as existing customers of their bank and investment services, business customers, or people with marginal credit.

Within each group, reputations for customer service vary. Some are pleasant and efficient at handling disputed charges and replacement cards; others are not. Some are reasonable in helping customers in financial straits develop a realistic (there’s that word again) work out plan; others have the subtlety of loan sharks.

I am at least as sensitive to quality-of-service as I am to price (in this and many other areas), and have over the years concentrated my business where I feel I get good service. In this regard, my impression is that having an airline-affiliated card gets you better customer service than other cardholders from that same issuer. Exact statistics are closely guarded secrets, but banks value this portfolio of business highly. Compared to their average customer, those customers have higher incomes, spend more, and produce far fewer bad debt write-offs. No wonder Bank One willingly gave United Airlines $600 million of debtor-in-possession financing during the current bankruptcy, and American Express recently advanced the same amount to Delta to help it stave off bankruptcy.

Are there money or tax questions you would like to see discussed in this column? Let me know, at 2835 N. Sheffield, Suite 311, Chicago, IL 60657, or call 773/525-1778 (888/525-1778 toll-free outside the Chicago area) or e-mail greg@gregmermel.com.

Greg Mermel is a certified public accountant whose clients in the arts range from individual performers to major theatre companies and suppliers. He also has been known to produce theatre.

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