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Creating wedding bliss with credit cards

Eva Norlyk Smith Ph.D.

May 12, 2014

QDear Eva,

I'm planning my wedding, and I'm having a debate with my fiancé. He says we should put all of the expenses on one card so we can track our costs, but I think we should spread them out so one card isn't maxed out. What are the advantages either way? Thanks! –Meredith

AHi Meredith,

Congratulations on your upcoming wedding! And, welcome to the world of marital negotiations. As any bride-to-be or newly married woman discovers all too soon, juggling financial matters can be a minefield for couples. In this case it's doubly tricky, because you both have good arguments.

You need to look at the relative advantages of each and then decide which works best for you. So, here goes:

Weddings are like houses. Whether building or buying, you always end up spending more than you had planned.

First, there are always expenses you hadn't anticipated.Ask Eva

Second, invariably, the items you like the most are also the most costly.

Last, with so many decisions and expenses coming at you, it's just easy to lose track of how much you've already spent.

Even if you intend to be super disciplined about keeping an updated record of what has been spent and how much money is left, you'll find that all too soon, you're just too busy with wedding preparations to effectively keep your records up to date.

The upshot? Once the honeymoon is over, many couples find themselves deep in credit card debt, and end up paying off unexpected wedding bills for months and often years. Not a great way to start a marriage.

So, your fiancé has a point. If you charge all expenses to one credit card, you can't lose track of how much you have spent and, as importantly, how much you have left to spend. That also helps immensely to inform your decisions. That flower arrangement that seems to be a must-have when planning will be easier to forgo if you have the perspective of how much — or rather how little — money is actually left to spend. And with that perspective, your second, cheaper, but not-quite-so-amazing option, will seem to be a more desirable choice.

So what will be the consequences if you charge everything on one card and max it out?

As you likely know, the rule of thumb is to keep credit card balances low, ideally below 30 percent of the credit limit. Keeping large balances is viewed as a sign that the cardholder is short of money, and it impacts scores. This debt-to-limit ratio is also known as credit utilization, and it accounts for 30 percent of FICO scores.

That being said, there are additional factors that come into play. Credit utilization is calculated both within and between credit cards. So if you have one card that's maxed out, but lots of other cards with low or no balance, the impact will be far less.

Credit scoring models are sophisticated enough to distinguish between people who max out all their credit cards and are obviously short of money, and people who charge a lot to one card within a limited period of time, but have low or no balances on other cards. In addition, as you pay the card balance down, any impact on your score will disappear — and of course, the faster you pay off the card, the more short-lived the impact.

What's the worst thing that could happen if your credit score goes down? It could affect you if you are planning to buy a house shortly after you get married. Either you'd end up paying a slightly higher interest rate, or you could have difficulty qualifying for a mortgage. However, by steadily paying down debt and lowering your credit utilization ratio, your score can improve in six months to a year.

Bottom line? Whether you use one credit card or several to pay your wedding bills, the most important thing you can do for your credit — and relationship — is pay down the debt as quickly as possible. So, enjoy your wedding, and look forward to a credit-wise future together!

Got a question for Eva? Send her an email.