When Is It Time To Let Go Of Your Credit Cards?

January 30, 2014

A credit card being cut by big pair of scissors

It used to be a good thing when you had 4 or 5 different credit cards in your name. It used to give you a feeling of security knowing that you can tap each of these for any reason when you need them. But now that practically everyone has been burned by the uncontrollable debts and inflated interest rates, people are starting to think whether it would be in their best interests to just let go of their credit cards.

For some people, if they didn’t want to use their credit cards, they simply cut them up instead of closing up the account. The reason behind it is that they fear that closing or canceling their credit cards will affect their credit rating negatively and they don’t want to risk that. However, there are instances when it is actually better to let go of your credit cards and here are some of those situations:

  • When you “really” want to be free from debt – You have to face reality that you’re one of those people who can’t resist the temptation to use their credit cards to their maximum limits. You are constantly thinking about using them and you’re terrified that you’re going to end up being in extreme debt when you do. Rather than having to live with this fear and stress on a daily basis, you may want to get rid of your other credit cards (especially your department store cards) but leave the oldest ones activated. Credit ratings work positively for accounts that have been open the longest time.
  • When the card has outlived its use – Some credit cards are opened because of their perceived function, like in the case of frequent flyer miles credit cards, which can work in your favor if you prefer a particular airline for your personal or business travel. Then it makes sense for you to rack up the points and benefit from the free flights and other rewards. But if you or your work have started patronizing a new and different airline, then you will no longer be reaping the rewards for the old one so it makes sense to close that account.
  • When the card has been used fraudulently – The cliché “better safe than sorry” is pretty much applicable in this case. If your credit card has figured in a fraudulent transaction, whether it’s been stolen or an online transaction keeps getting charged to your account, then it is a practical move to close it rather than continuously have to report such fraudulent charges and erase them from the account.
  • When you’re splitting up – It also makes sense to cancel your credit cards if you’re in the process of separating from someone whom you have a joint account with. When you have a joint account, you will be personally held responsible and accountable for any charges made on that account even if you’re no longer together. If in the unfortunate event that your partner uses your credit card to make exceptionally expensive purchases, then you will be held liable for such charges since the joint account is still active and open.
  • When you no longer want to pay the annual fees – There are some credit cards that after the “teaser” year where you don’t have to pay any fees, you will start to be charged with an annual fee to be able to use the credit card. If you no longer want to continue using the service and therefore no need to pay the corresponding annual fee, then you can opt to close the credit card.