You Tell Me: Is it better to get rid of the cards or keep them?
Posted by Lynnae on November 29, 2007
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I was doing my daily blog reading the other day, when I came across this post at I’ve Paid for This Twice Already. It wasn’t just the post that got me thinking. It was the comments that followed.
The gist of what happened is this. Paidtwice’s credit card company raised her credit limit. She has a balance that she’s paying off rather quickly on a 0% card. The discussion that followed took a turn where I found the question I’m asking you today. When you’re in the process of paying off debt, is it better to keep your credit cards, or is it better to get rid of them?
I did something in between and froze my credit cards. I know it sounds nuts, but it works for me. I forget that they’re there, but I’m not at the point yet where I’m comfortable getting rid of them all together.
So what’s the answer? And why? You tell me!
Photo by SqueakyMarmot.
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33 Responses to “You Tell Me: Is it better to get rid of the cards or keep them?”
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- A Continuation of Yesterday’s Post | beingfrugal.net
- A Breakdown of The Credit Card Debate | Antishay Ventenne
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I am not a financial expert. I'm just a wife and mom doing the best I can to live a frugal life and get out of debt. Like any human, I make mistakes. I write this blog out of my own experiences, and nothing I write should be taken as expert advice. If you need financial advice, please consult a professional.
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Well, I think that answer is relative. Good question though and one that I’m sure will have many opinions. For us, we would rather keep a credit card or two on hand for emergencies. We’re very disciplined with our CCs though. I have a few friends that cannot keep their cards paid off even after the tax return zeros out the balance. That would be OK if they could afford the payments.
~Melody~
http://penniesinmypocket.blogspot.com/
The answer is get rid of them. You don’t need them and they are risky. Why keep them? By even asking this question, that tells me you really don’t want to use them, so why have the temptation around you…
Mark 9:43 - If your hand causes you to sin, then cut it off.
Of course, you already knew what my answer would be
Honestly, I think the answer is different for different people. Which is what I said in my own comments as well.
For some people, you can keep them and not use them. Some people can use them in a disciplined matter (paying off every month) after debt is gone. Some people need them gone completely. I think in some ways it is a question of habit.
Are you (the hypothetical you out there) in the habit of reaching for a credit card to pay for things? You might need it removed from the wallet for a bit.
For me, using the cards wasn’t a habit for paying for things and I didn’t need to remove them to stop using them. You’d better believe though if I *needed* to, I would have.
Different strokes for different folks. This isn’t a one size fits all scenario.
@glblguy - “Mark 9:43 - If your hand causes you to sin, then cut it off.” Ouch.
I struggle with this one, because I feel like if I don’t destroy the cards, I’m not trusting God to provide for us in an emergency….it’s a vicious cycle.
@Paidtwice - I’m still on the fence about whether or not credit cards are completely evil or not. And thanks for coming over to join the conversation. I definitely see your point. And in my case, I wasn’t in the habit of reaching for the card either. However, I was in the habit of spending our cash to the point where we’d need to reach for the card in an emergency. And our emergencies weren’t always the true definition of an emergency. So I definitely needed to get my cards out of my wallet.
Interesting discussion so far. I still haven’t made up my mind what I think.
Hi there, I’m a new reader to your site. My husband and I have just begun our first truly serious attempt to pay off our credit cards and we’re starting by saving a $1,000 after reading a book by Dave Ramsey. Unfortunately for us, probably 90% of our credit card debt is due to emergencies, not extravagant purchases, so we have nothing to sell to help with debt reduction. Just last summer, we spend over $4,000 on car repairs. A year before that, there was an emergency root canal, a large medical bill for my husband’s son, and an emergency cross country road trip when his mother was ill (she passed away while we were there) that, in addition to expenses, cost us two weeks pay. All of these things cost well over $1,000, which is all we plan to save for now. So, although we no longer carry our cards, I plan to keep them because I already know that I don’t use them for luxuries and during these previous catastrophes (we’ve had several each year for the 6 years we have been together) $1,000 for an emergency fund wouldn’t have covered them. The other 10% of our debt from non-emergencies was generally for necessities that I should have planned and budgeted for. I AM doing that now and so I don’t carry them. But, we’re in such a tenuous financial situation that I can’t simply get rid of them altogether. I hope that one day we will have such a huge emergency fund that I can cut them up.
I would say get rid of the newer cards and store cards with those high interest rates, that you don’t need or don’t use and keep the older ones that show yur good payment and credit history and or the ones with the best interest rate. This way you don’t wreck your credit rating by cancelling but have a card or two for emergencies. Pennies in my Pocket is correct, you have to be disciplined with your cards.
I can’t remember where I read it, but if you are going to cancel cards, don’t cancel a bunch in one month, space it over a couple months so your credit report does not get dinged.
I think that if your disciplined enough not to use the cards frivolously, keep them. We also are in the situation where we 1) have a large amount of CC debt and 2) because of minimum payments, older automobiles, and three kids needing glasses, casts and shoes, are not able to adequately fund an emergency account. Here’s what we do.
We are using a snowball method to pay down our debt, which should be completely gone by the spring of 2011. This doesn’t include our mortgage, but it is a fixed rate mortgage with a good rate. At the same time, I keep a 0% card with rewards debt free for the emergencies we have that are under $500.00. We also keep a line of credit open at our credit union with $4000.00 for major auto & home repairs. The latter doesn’t have the lowest rate, but the payments are higher, so I’m forced to keep it paid off.
The juggling is a hassle at times, but we’re staying on track and I anticipate paying off the debt on time or early, IRS permitting. As I pay off my CCs, I plan to cancel all but 1 visa, 1 master card and 1 discover, all of which I’ve had for 5+ years. All the rest will be history.
As I pay down the debt and live very frugally, though. It helps psychologically to see a dollar amount of credit available if a catastrophe should occur.
I really don’t think there’s one answer to this for everyone. It depends on the individual situation. Will there be any major purchases anytime soon like a car or home (or just moving)? If so, you want to make sure you keep your credit score intact. Bouncing Betty mentioned not canceling many cards at once. What you also want to think about is how long you have had your card. If possible keep your oldest card since it’s your oldest credit history.
If you’re worried about your credit limit you can ask the company not to raise it (though part of your credit score looks at how much you owe relative to what’s available so a higher limit could help your score).
Another thing you can do is cut up the cards but keep the account. The credit stays open but you don’t have that plastic handy ready to spend.
For me personally, I keep my cards stashed away. I took it with me on my road trip incase we got stranded in the middle of nowhere, but I don’t like to have me other times. I would agree with Betty on the store cards. It’s better to just get rid of them as they usually only work for their store AND their interest rates are horrible.
I didn’t read all the replies, but here’s my $.02
If you close an account before its paid off, often a company will increase your percentage rate to the maximum allowable by law. That means if you were to close an account it could jump up to 30%!!!! So if you are sure you aren’t going to be using the card anymore, it’s better to cut it up and wait to close the account until its paid off. (I’ve heard freezing cards can damage the magnetic strip-an alternative would be putting it in a safe deposit box at the bank or some other safe but inconvenient place to get it out of.)
If you close multiple accounts at once, its a hit to your credit score, so its important to stagger them, and only cancel 2-3 cards a year at the very most, even if they have a zero balance. This can affect you adversely if you are chasing 0% promotional rates, opening and closing accounts as you transfer balances around as the promo rates expire. I have heard several people tell me they do this, thinking they are very clever, but in the long run it could cost them a lot of money when they can’t qualify for a good rate on a car or home loan. Your credit score is based on a predictor of both your ability to repay credit *and* your profitability to creditors.
For this reason always paying your balance in full every month for years & years can drop your credit score too or cause companies to drop you as a customer. So to have good credit you have to use it, and part of that means occasionally paying some interest to ensure you will always qualify for the best rates. (In other words, good credit is not free, you do have to pay some interest to keep a good credit rating.) Every other year or so, its wise to charge something around $500, and take 3-4 months to pay it off, making on time payments of course. This will help your credit score and keep card issuers from dropping your account, if you have multiple cards, vary which one you use. I know 3 people whose long standing accounts were canceled because they paid them off religiously every month. The companies didn’t like paying the overhead on managing the account with no interest coming back in.
We have 2 cards, an emergency card (hasn’t been used in over a year, and when it is its paid off the following month.) We use that card also to book family trips that require a credit card, and it does kick back some rewards when we do use it. We do not carry a balance on this card, except to bolster our credit as I described above. I use it for the occasional major purchase when I am concerned about my ability to return it if it didn’t work out-credit card companies will go to bat for you in a dispute or customer service issue.
The other card is for DH’s work related travel. We pay it off as the reimbursements come in so we generally don’t carry a balance there either. It gives us some pretty hefty rewards because he travels a lot, so by having that card we earn cash every month and pay no interest. There is always the possibility that his work will be too slow with the reimbursements for us to afford to pay it off all at once. If we have to carry a balance while waiting to get paid back, the interest on that card is tax deductible.
I have to say I’m torn on this one. My gut says it depends. Then again, I might change my mind if I actually try living without credit cards. It’s a scary thought (living without credit cards), which is why it’s a hard decision to make.
Hi Lynnae,
We have a total of three credit cards, one is used strictly for business (we buy a lot of equipment that is reimbursed to us after we install it). This card is paid off every month religiously. It also has a rewards program and we’ve earned about $1000 cash back on it this year. One of our other cards is in my name as the primary card holder. I got this one to build my credit score. I mistakenly thought I had plenty of credit as I have a card in my name too on the business acct. but since my husband is the primary card holder it only built his and not mine. This card is also paid off every month - I only charge a few things simply to build credit. Our third card is a 0% that we used for home improvements and will hopefully be paid off before any finance charges accrue and then we’ll close this acct. and cut up the card.
I do agree though that you shouldn’t close several accounts at once. Also I’ve heard that you should not carry a balance of more than 50% of your available credit as this will damage your score.
As for booking a hotel room, I believe you can use your debit card to do so.
Blessings!
Michelle
I take a middle ground. I don’t get rid of them, but I make them disappear when they’re paid off. (made invisible in Google, cards thrown away, etc). I don’t close the account because they are still a hail-mary-I’ve-got-no-other-choice source of money. If I have to come up with $50,000 for some emergency involving the family. They’ll come out, damn the interest rate. Until then, I bag ‘em and forget ‘em.
I physically get rid of the card, so I’m not tempted to use it on a whim, but I can always call the card issuer and tell them the card was destroyed and get another.
Yes, you can use a debit card to book a room. They don’t charge you, just want your card in case you don’t show up.
My wife and I use our credit cards for almost everything (to get the rewards), but the key is that we keep a very close eye on our balance, and make sure that we pay them off every month. We have yet to carry a balance on any of our cards, so this system seems to work pretty well for us. If we ever get into the situation where we are forced to carry a balance, we will have to rethink our strategy.
- Brandon
I finally decided that we had enough of credit and debt and have been slowly getting rid of our cards. My wife has only two cards a corporate amex and a gold visa with an inexspenive line of credit. Those are onlz for business )she travels several times a month. I would probaly would have one low limit card for things that you can’t pay for with cash. Like flights booked with airmiles, you get the flight free but still have to pay the taxes.
Does it affect your credit score that they’re frozen? Because otherwise I’d say keep them. Unless you’re applying for a mortgage, in which case having available credit would hurt you.
(Why do you want a good credit score? Not for credit, obviously, but for lower rates on any necessary loans or things like cell phone contracts–I had to put down a security deposit the first time because I had no history.)
Actually, my husband and I only use our card — maybe spend $20 in cash each month — that way we can track our expenses and budget each month. But, then again, I expect we are outside the norm in only spending within budget and not making extra impulse purchases. In our 40’s and 50’s, it’s a bit easier to stop acquiring and be continuously reducing or holding steady. Now, if only I could cut out my mocha habit, I’d have that much more money left over each month ;-). That one, is going to take a bit more work. Even the bottle of chocolate syrup next to the coffee pot hasn’t worked.
If you can be disciplined, it is a good idea to keep one or two. Having a revolving credit account for a long period of time looks very good on your credit report. (As long as it’s always paid on time). So, if you even just keep one and rarely use it, later when you go to buy a home or re-fi, it will help you get a better interest rate.
Having available credit only really hurts you in applying for a mortgage if it’s an excessive amount. Of course they may question why you’d have 12 credit cards. But what usually matters more is your income compared to your monthly commitments. So it’s good to have a few open accounts, as long as they’re not costing an arm and a leg in monthly payments.
I also use cards for the rewards. We almost always pay them off each month. That is, until we had to replace our furnace and had some major car repairs all happen within a few months. Now we are carrying a large balance on two of them. But I was able to transfer the bulk of the balance from one card to the other for a 0% rate. I called the company and asked if they had any promos and they gave me this rate for 1 year. So, I didn’t open a new account, I just got a great deal from one of the 3 accounts we already had!
You kind of want to keep them. If you have a cc that you have had for a long time that looks really good and improves your credit score.
This is a very interesting topic. It’s obvious that it’s different for everyone. I used t think that I should keep a credit card for emergencies. Now that I’m on my strict debt shackle release program, I’m not so sure. I have one credit card, but I don’t carry it with me. It’s hidden away in a drawer. My goal is to pay it off and close the account. In fact I’ve considered closing it when my emergency fund reaches $1000. I haven’t contacted the credit card company, but if they are going to raise the rate if I close it, then I’m going to hold on to it until I pay it down to zero.
I keep my credit cards and use them. Part of the reason is that I do not like carrying cash at all (I keep only one new bill in my wallet, usually a $10 or a $20).
I have a Chase Freedom rewards card that I use for fuel, groceries, and drug store purchases (3% back), plus I get additional points when I shop online with participating merchants.
The key for me is to only use the card for the things I would buy anyway with cash (like food and fuel and aspirins). And the only purchases I make online are ones that I have planned and where the money is set aside in advance. So I guess you could say that I carry a credit card — but I use it like a debit card, as I pay my balance every week.
I always request checks when redeeming my rewards (not gift cards or merchandise), and I deposit them into my savings account. So far this year, I have earned nearly $200 in account bank sign-up bonuses and rewards, and all of it goes to my emergency savings account. I anticipate earning at least that much in 2008, and all of that is money that I would not earn with a debit card.
shela, play with fire long enough and you will get burnt.
I once had a credit card account I wanted to close to limit the number of cards I had. I called to cancel it and the person told me that since I still had a balance on it, canceling it at that moment would negatively affect my credit rating. So I paid it off and canceled it the next month.
I also have heard from TV financial people that if you have a very high limit on your cards (that you do not have charged up) that you might want to think twice about canceling the card because losing that “credit” will also negatively affect your credit rating. I have to call my credit card companies to make them stop raising my limit.
I really think credit cards are a necessity of modern life. Like anything else you just need to be responsible with them. Don’t buy things with them that you wouldn’t be able to buy without them. And pay them off every month (I pay mine weekly online and never get charged fees)
Rewards cards are nice, but you have to charge a lot for them really to pay off. If you have a small business though they can be great. My wife has her own business and we usually are able to fly for free every year with our miles card
Wow - lots of differing opinions but I wanted to add mine. If you know you have a problem, it seems wise to remove (not resist) the temptations. That said, emergencies happen too. I have a current credit card strategy. When I was digging out of debt, I coud only get crap offers and low limits. So I decided I need a credit card stategy. For every new, higher limit card I get, I cancel an old crappy one. I know about aged cards and such, but I don’t want too much temptation in my way. I plan to keep 1 or 2 cards with high limits because that’s about all I think I can handle.
I’m going through the same thing and I like your idea about putting it in the freezer.I should do that.. I just got my tax refund and im totally trying to pay off all my creidit card so I dont owe them anything anymore..which is about $2000 debt that i’ve been struggling to pay.I think I’m keeping it, just leave it in the house for emergency..I have about 4 of them and I’m gonaa cut off 3 i think..but not for now.Coz I dont kno if i could fully let go of them either..But this time I gotta wise up.i’d say keep at least 2 just incase!=)
I think credit card may be useful sometimes. But people must be very careful by using it. It’s better not not begin using it, than fall in debt we can’t pay afterword.
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