Consumers should pump the brakes on new credit cards

In 2008, Americans consumers held a staggering total of 496 million active credit card accounts. It was the most open credit cards ever in our country’s history.

The financial collapse that soon followed dropped that figure by nearly 25 percent over the course of two years. As of 2010, open credit accounts totaled less than 380 million.

That plunge made sense. After all, it was our overreliance on credit cards and loans with less than favorable terms that put us all in such a bad position in the first place. Even as the economy began to right itself, Americans were largely wary of spending beyond their means.

Oh, how quickly we forget

Now credit card usage is back on the rise. There are presently more than 435 million open accounts in the United States and it’s predicted that we’ll surpass our 2008 peak in less than two years.

That increase has been driven largely by credit card companies looking to entice consumers back to charging by offering increasingly favorable rewards, including big cash back bonuses and low introductory rates. Creditors mailed out 4 billion credit card offers last year, which is enormous compared to the 1.8 billion that went out in 2009.

Consumers, for their part, are taking the bait. Thanks to a stable economy, consumers once again seem comfortable taking on debt – credit card debt is rising at the fastest rate in six years, with balance totals reaching $644 billion earlier this year.

Pump the brakes on borrowing

As counterintuitive as it may sound, heavy consumer borrowing is a sign of a strong economy. So it’s good that consumers are confident enough to begin charging once again. But as with all good things, there must be moderation.

Consider the following before saying “yes” to any of the 30 or so credit card offers currently sitting in your mailbox:

How much credit can you handle? Having access to credit inevitably raises the possibility of you using that credit. While a high credit limit can be useful in case of an emergency, eventually you need to pay back that debt. So how much debt can you reasonably handle? Aim to keep your cards and associated credit limits within a manageable range.

Consider your credit score. New accounts reduce the average age of your accounts, which can have an adverse effect on your credit score. Be wary of opening new credit card accounts if you need your score to be pristine in the near future.

Can you stay in control? The more credit cards you use, the higher the likelihood that things will get away from you. That means both spending beyond your means and simply losing track of your bills and payments. If you’re going to open more accounts make sure you have a system in place to help you successfully manage those accounts.

Don’t let your cards dictate your spending. One of the downfalls of all these great credit card offers is that they’re designed to entice you into spending money you may not have spent otherwise. Double cash back rewards sound good until you find that you’re spending beyond your means in order to achieve your rewards. A good credit card should help support your financial goals, not radically alter your spending habits.