Should I Cancel My Credit Cards?
Should I Cancel My Credit Cards?
There’s a raging debate among financial experts as to whether people should cancel credit cards or not. Once the first recommendation of every financial expert, over the last five years that advice has been questioned and there’s a reversal from some sides of the aisle, whereas the other side of the aisle has stood firm.
The side that’s changed came upon a different landscape. They now saw outstanding credit as a good thing, whether it was being used or not. Creditors were relying more on Fico Scores/Reports
, which used as part of their algorithm how much credit a person already had been approved for, how much they had available, and how well they were keeping up on it. A great FICO score would come from someone who had available $50,000 of credit or more, but had no outstanding balances. The credit had to be shown as being used in some fashion also; a person couldn’t just be sitting on credit that wasn’t being used to get a positive score.
The new advice totally went against the grain of long standing fiscal responsibility principles that said if you weren’t using credit, and didn’t see yourself needing it, to close it out and get it off your report. Also, if you were someone who was trying to work your way out of a debt hole, canceling credit cards would keep you from using them again, giving you control over your financial situation, which would improve as you started to see benefits from paying down your debt.
It’s recently come to a head as the world has been dealing with its recessionary state. All those credit card letters that used to come at least once a day have dried up. People with good credit are suddenly seeing their interest rates going up, whether they’ve ever missed a payment or not. People who miss a payment by even one day are seeing drastic jumps in their interest rates. And some banks and credit card issuers are retroactively capping balance amounts, making people pay a lump sum to get out from under a high level or else risk getting penalized for being over their credit limit.
Now, those who have said that cutting up credit cards was a bad idea are having to challenge their own thinking. Recently on CNN Money, a financial counseling expert said that he believed most people who saw these jumps in interest rates should keep their cards and try to pay them off quickly so they wouldn’t be hit as hard with the higher rates. That answer didn’t get a positive reply from the person he was on with, and he quickly added that each consumer had to decide for themselves if they wanted to put up with higher interest rates, and that they could possibly switch to a different credit card with lower rates, or possibly apply for new cards at low introductory rates.
Of course, since no one is getting those offers for no-interest introductory rates anymore, the point is moot, and the advice is weak. Of course every person has to decide for themselves; that didn’t have to be said. But it does point out something that many of us have known for years. Even financial gurus can’t always offer the best advice for everyone as far as determining the best way to go.
Here’s my take on it. FICO scores are heading the way of dial up internet service. The housing crisis has shown that a good FICO score still won’t always get you a loan if the bank can find another way around giving you a loan. If the same continues to happen for anyone else looking for good financial deals, FICO becomes obsolete and means absolutely nothing to anyone.
Therefore, the decision does really come back to you, the consumer. If you feel you can’t get a handle on your spending, cut up your cards and pay down your debt. Keep at least one card, since many hotels, car rental companies, and other businesses won’t allow you to reserve anything without a credit card number on it. Get rid of temptation if you must. Always take care of your most immediate need first. Make the best decision you can live with, and let time take care of the rest.
See more:
Credit Card Debt Consolidation
Credit Card Companies Raising Rates on Consumers
Old Credit Cards – Should I Cancel Them
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