Having a credit card can be beneficial for many reasons. It can help in emergencies, it can build reward points for future purchases, gain airline miles, and most importantly build your credit score. The downsides to owning a credit card though can outweigh the benefits. At the end of the day if you count all those late fees and the interest charged over time it adds up to costing you more than you get in benefits. Even if you are making on time payments! Credit card companies want you to use the cards frequently so that they get more money out of you. That is why they provide benefits to intrigue more interest in them.
The easiest way to prevent yourself from giving away more of your hard earned money to the credit card companies is to get rid of the credit cards. The problem is if you cancel your credit cards you are not building up your credit score. Your credit score is what helps you get approved for loans, credit cards, and more importantly housing. The better credit score you have the better chances you have of getting approved for an apartment or dream home. So what can you do to avoid paying extra money to the credit card companies but still build your credit score?
If you cancel a credit card all together it affects your credit score. I have only cancelled one credit card. It was an accident that I even had the card in the first place. A sales lady pushed the buttons and agreements for me before I even knew what I was being signed up for. I had only agreed to get a reward points system at the store. She never mentioned it being a credit card and didn’t give me time to read the agreements on the screen. She handed me the brochure for the credit card after she had me sign up.
Needless to say I panicked. I told the manager of the store to cancel it because I was misled. It ended up showing up on my credit score and is still there today. It will eventually disappear after 7 years so I let it stay on there. I figured it would be too hard to dispute and would eventually go away on its own. However for a while it dropped my score significantly for having cancelled a line of available credit.
It would have been a smarter idea to keep the account and just not use it. That could have meant cutting up the physical card but keeping the account. I also could have taken the card and put it in a safe place at home where it wasn’t as accessible.
The reason you want to keep it is because credit card companies, loans brokers, apartments, car insurance agencies, and mortgage companies look at your credit report. They are looking to see if you’re responsible enough with your open credit lines to make on time payments and not cancel them. The more active lines of credit in good standing with usage under 30% with on time payments the more likely you are to get approved. They want to have reassurance that you are going to pay them on time, keep a small running balance, and keep the credit line open.
My suggestion is to take your credit cards out of your wallet. You should put them in a safe place like a fireproof safe for instance. If you have an abundance of credit cards I would suggest taking the ones that are not normally used and cutting them up. So that you are unable to use them anymore. Take the ones you use frequently and lock them up in a safe in your home. This is done so you won’t be tempted to take them out of your wallet at the store. Start trying to use cash or a debit card that is tied to your bank account for all future purchases.
Start paying down any outstanding debt on your credit cards. Use all the money you can to pay down that debt but remember to save enough to meet your essential needs. See my other articles about making a budget and getting more cash flow if you need more income to make this work. Your goal is to be debt free as quickly as possible but it will take months to years depending on where you stand today in your finances.
Your credit score will increase and decrease as you pay off your debt. Almost like a roller coaster. You will come out ahead if you have a few open lines of credit with low usage. Even if you have a poor credit score you can improve it. My suggestion is to limit your access to your cards and pay them off. If you don’t have a credit card I suggest getting one and not using it unless it’s an emergency. Unless you can pay full cash for a house you will have a hard time getting approved for a loan or an apartment without some kind of credit score. It is not impossible but it is very difficult and is getting harder each year. The better score you have, the better your chances are for getting approved for the larger loans.
The whole point of locking up credit cards in a safe is because it is too tempting to continue using them when they are in your wallet. Me and my husband agreed to stop using ours about a year ago. My self discipline was kind of shameful. I would still use the card here and there. I ended up using it more than I used my debit card. I kept telling myself I would build reward points and pay it off right away. However I realized I had $700 outstanding on my card again after having fully paid it off only 3 months prior. Clearly I wasn’t listening to my own advice.
Then I found out my husband had maxed out his card at $2,000 in just a few months. He let it sit there for months gaining interest completely maxed out before he told me because he was too ashamed. That hurt not only our finances but our trusting relationship. That is when I decided to put the credit cards away. They are now out of sight and out of mind in a fireproof safe.
That was done in February 2020 and my credit card is paid off 2 months later. My husband’s credit card was paid off 3 months later. Let me just tell you that neither one of us misses our credit cards. It is almost like they are gone or never existed. It feels like a heavy weight was lifted off of us. All because we hid them away from our everyday activities and are working towards paying them off.
In just the last month my credit score skyrocketed to an excellent score of 786. This strategy actually works and lifts a heavy burden on finances and relationships. The only reason I have not cancelled the credit card account all together is because of my credit report. The main point you need to take away is to hide away your credit cards in a safe spot or cut them up. Pay off the outstanding debt and you will be in a lot better off.
