Many get-out-of-debt forever pundits push the idea that every credit card should be hacked into pieces. If you are like many who are unable to control their credit spending, this may be your best option for reducing debt. However, for others, good reasons may exist to keep a credit card or two available in your financial arsenal. The answer to whether you need to cut up your credit cards depends on your financial situation and management.
People who fear cutting up a credit card probably should cut it up.
If your credit rating is good, getting a new credit card at some point in the future should be easy. On the other hand, most people who are reluctant to chop up a credit card probably feel that they need it to stay afloat financially. It is always a bad plan to use unsecured and growing debt to fund your lifestyle.
Do you immediately start to charge on a credit card as soon as you get it?
This does not count those cards where a vendor offers you a deep discount to open a charge account. If you pay that card off when the bill arrives, you have saved some dollars. Unfortunately, many people lack the ability to spend less than they can afford to pay. This means that at the end of the month with a new credit card you are paying less than the total balance. Suddenly, that discount is being consumed with the interest being applied to this new open credit account. This is a problem if you repeat it more than once.
Do you keep a total outstanding balance over $5,000 of credit cards?
This is all of your cards added together. $5,000 is still too high, but a lot of people can manage a payment at this level without seriously affecting their ability to live comfortably. If the balance continues to rise to this level fall back for a month or two and rise back up, you need to examine your spending practices. You may be using this credit to augment your income rather than to take care of special buying opportunities, travel, or other situations where a credit card may be the preferred way to spend.
How often does one of your credit card balances make it to zero?
Plenty of credit card users believe that as long as they can make the monthly payment the balance of the credit card does not matter. This allows them to view their credit limit as free money. They spend the money, make a small monthly payment, and believe that all is well. The problem is that a day of reckoning will eventually arrive.
Debt has to be repaid.
If not, credit limits will be reduced, interest rates will escalate, and future credit applications will start to be denied. The financial noose will tighten if you do not find a way to pay off your debt. If you never or rarely pay off a card balance, you should consider getting out the scissors and using them on your credit cards.
How many cards do you have?
If you have a deck, start planning now how to reduce the number of cards and cutting them up. If you are holding your only card, and it has a miniscule or zero balance, put it back into your wallet and relax. Having a credit card or even two is not a bad thing. Some people like to keep one of each major card so that they always have one that will work regardless of the type of card that a merchant accepts. Because most businesses now accept nearly every type of card, this is rarely necessary.
If you do not eliminate credit cards, use them sparingly.
Use your card to reserve hotel rooms, rent cars, and for other uses where you may not want to use your debit card. Either make sure to retire the balances as soon as possible or just leave the balance at zero. Most card issuers do require you to charge once in a while to keep your credit account active.