MM Thoughts on closing Credit Cards

brij2006 · July 2014

I know this has been mentioned before, but I couldn't find the thread in the search area.

H and I are doing DR's Total Money Makeover plan. We have not used our credit cards since December of last year. We also have yet to shred them, but they're not in our wallet/purse and don't get used.

Would you call up the card companies and close them? Many of them are store cards that we haven't used it years, and a couple of them have automatically closed because we haven't used them in over 3 years.

We aren't worried about how this will affect our credit, because we aren't going to be needing credit anymore. FWIW our scores are in the low 800's, so closing these accounts would still put us in an excellent credit score rating even if it takes a hit.

The reason we're thinking of closing them is because we never keep track of them anymore. So someone could steal them and rack up a bunch of charges, and we wouldn't know until we receive the bill.

uncreatedsnow · July 2014

Personally, I would cut them up but not close them. If they close on their own then that's fine.

I like Dave Ramsey but hate his approach to Credit Scores. I see where he is coming from, but that's pretty unrealistic to me. Also, it's much easier to have "zero credit" when you start out that way, but why hurt good credit or not try to fix bad credit if you can?

maple2 · July 2014

I would close all cards except one. If you don't use the cards, there is no reason to have them but you are still subject to the risks you mentioned. I would keep one of the non-store cards open in case there was an emergency, and because they can be handy under certain circumstances. My aunt has never had a credit card, and it has been problematic when she travels and wants to do things like rent a car and/or reserve a hotel room.

brij2006 · July 2014

uncreatedsnow said:

Personally, I would cut them up but not close them. If they close on their own then that's fine.

I like Dave Ramsey but hate his approach to Credit Scores. I see where he is coming from, but that's pretty unrealistic to me. Also, it's much easier to have "zero credit" when you start out that way, but why hurt good credit or not try to fix bad credit if you can?

It's because you don't need a credit score to make purchases anymore. Paying cash = doesn't matter what your credit store is because you don't need credit.

smerka · July 2014

Insurance companies frequently look at your credit score to determine how much of a risk you are, and your rates can be affected.

brij2006 · July 2014

smerka said:

Insurance companies frequently look at your credit score to determine how much of a risk you are, and your rates can be affected.

Yeah I know that (I'm an insurance agent), but I also know that once your credit is at zero then your credit rating is basically zero'd out with the insurance companies. Which in turn gives you a better rate than the person who has an 800+ credit score.

Xstatic3333 · July 2014

I'd keep the non-store cards open at least. When I didn't use CC at all while getting rid of my debt, I still kept one around for things like deposits on a hotel room. For some reason that stuff doesn't work great with debit cards.

This is something I also differ with DR about. I'm with him on not using CCs, though I'm fine with using them for points it's no big deal not to. I just would prefer to keep a strong credit score for emergencies. Still, even if you follow DR's philosophy to the letter I think my reason above is a good one. You'll need a hotel room when you go see Harry Potter once you're debt free, after all

brij2006 · July 2014

Xstatic3333 said:

I'd keep the non-store cards open at least. When I didn't use CC at all while getting rid of my debt, I still kept one around for things like deposits on a hotel room. For some reason that stuff doesn't work great with debit cards. This is something I also differ with DR about. I'm with him on not using CCs, though I'm fine with using them for points it's no big deal not to. I just would prefer to keep a strong credit score for emergencies. Still, even if you follow DR's philosophy to the letter I think my reason above is a good one. You'll need a hotel room when you go see Harry Potter once you're debt free, after all

Hahaha. Oh yeah!

We actually used our debit card for a 3 night stay a couple of months ago, and I was shocked as to how easy it was. They just did a $50/night reserve on the card. So it was an extra $150 hold on the card, but we always have a $1k buffer in there. So it wasn't a big deal. H is going to use it this weekend for a 1 night hotel stay, so we'll see if it's just as easy.

I've always been under the impression that using a debit card for hotels is a PIA, but our friends always did it when we traveled together and never had an issue. It's definitely something new for us to get used to, but so far it's been a heck of a lot easier than I thought.

Xstatic3333 · July 2014

brij2006 said:

Xstatic3333 said:

I'd keep the non-store cards open at least. When I didn't use CC at all while getting rid of my debt, I still kept one around for things like deposits on a hotel room. For some reason that stuff doesn't work great with debit cards.

This is something I also differ with DR about. I'm with him on not using CCs, though I'm fine with using them for points it's no big deal not to. I just would prefer to keep a strong credit score for emergencies. Still, even if you follow DR's philosophy to the letter I think my reason above is a good one. You'll need a hotel room when you go see Harry Potter once you're debt free, after all

Hahaha. Oh yeah!

We actually used our debit card for a 3 night stay a couple of months ago, and I was shocked as to how easy it was. They just did a $50/night reserve on the card. So it was an extra $150 hold on the card, but we always have a $1k buffer in there. So it wasn't a big deal. H is going to use it this weekend for a 1 night hotel stay, so we'll see if it's just as easy.

I've always been under the impression that using a debit card for hotels is a PIA, but our friends always did it when we traveled together and never had an issue. It's definitely something new for us to get used to, but so far it's been a heck of a lot easier than I thought.

Gotcha. I keep a much smaller buffer, which is probably why that makes me so stabby.

brij2006 · July 2014

Xstatic3333 said:

Xstatic3333 said:

I'd keep the non-store cards open at least. When I didn't use CC at all while getting rid of my debt, I still kept one around for things like deposits on a hotel room. For some reason that stuff doesn't work great with debit cards. This is something I also differ with DR about. I'm with him on not using CCs, though I'm fine with using them for points it's no big deal not to. I just would prefer to keep a strong credit score for emergencies. Still, even if you follow DR's philosophy to the letter I think my reason above is a good one. You'll need a hotel room when you go see Harry Potter once you're debt free, after all

Hahaha. Oh yeah!
We actually used our debit card for a 3 night stay a couple of months ago, and I was shocked as to how easy it was. They just did a $50/night reserve on the card. So it was an extra $150 hold on the card, but we always have a $1k buffer in there. So it wasn't a big deal. H is going to use it this weekend for a 1 night hotel stay, so we'll see if it's just as easy.

I've always been under the impression that using a debit card for hotels is a PIA, but our friends always did it when we traveled together and never had an issue. It's definitely something new for us to get used to, but so far it's been a heck of a lot easier than I thought.

Gotcha. I keep a much smaller buffer, which is probably why that makes me so stabby.

Yeah I could definitely see that. Pre-TMM this would have been an issue with us. The only time I can see it becoming a real problem is when we go somewhere in the states for 7 days and rent a car too. But I figure that by the time we go to do that we will just transfer extra money into checking to cover any holds.

We're big all-inclusive people though, and even then we usually use our debit card to pay for those and there are no holds on that.

uncreatedsnow · July 2014

brij2006 said:

uncreatedsnow said:

Personally, I would cut them up but not close them. If they close on their own then that's fine.

I like Dave Ramsey but hate his approach to Credit Scores. I see where he is coming from, but that's pretty unrealistic to me. Also, it's much easier to have "zero credit" when you start out that way, but why hurt good credit or not try to fix bad credit if you can?

It's because you don't need a credit score to make purchases anymore. Paying cash = doesn't matter what your credit store is because you don't need credit.

I get that. I just don't like the idea of not having a score. I don't bank on getting to a point where I can pay cash for a house, and don't see them doing a manual underwrite on my credit as is so need to do what I can to improve my score now. It's a personal decision whichever way you go, but this is my personal pet peeve with DR.

brij2006 · July 2014

uncreatedsnow said:

brij2006 said:

uncreatedsnow said:

Personally, I would cut them up but not close them. If they close on their own then that's fine.

I like Dave Ramsey but hate his approach to Credit Scores. I see where he is coming from, but that's pretty unrealistic to me. Also, it's much easier to have "zero credit" when you start out that way, but why hurt good credit or not try to fix bad credit if you can?

It's because you don't need a credit score to make purchases anymore. Paying cash = doesn't matter what your credit store is because you don't need credit.

I get that. I just don't like the idea of not having a score. I don't bank on getting to a point where I can pay cash for a house, and don't see them doing a manual underwrite on my credit as is so need to do what I can to improve my score now. It's a personal decision whichever way you go, but this is my personal pet peeve with DR.

Yeah it's definitely something hard to wrap your mind around. At the beginning of his plan I had a really hard time with no longer using our credit cards for everyday purchases and getting points to redeem. My H was the one who pushed this more, and now I completely get it.

uncreatedsnow · July 2014

brij2006 said:

uncreatedsnow said:

brij2006 said:

uncreatedsnow said:

Personally, I would cut them up but not close them. If they close on their own then that's fine.

I like Dave Ramsey but hate his approach to Credit Scores. I see where he is coming from, but that's pretty unrealistic to me. Also, it's much easier to have "zero credit" when you start out that way, but why hurt good credit or not try to fix bad credit if you can?

It's because you don't need a credit score to make purchases anymore. Paying cash = doesn't matter what your credit store is because you don't need credit.

I get that. I just don't like the idea of not having a score. I don't bank on getting to a point where I can pay cash for a house, and don't see them doing a manual underwrite on my credit as is so need to do what I can to improve my score now. It's a personal decision whichever way you go, but this is my personal pet peeve with DR.

Yeah it's definitely something hard to wrap your mind around. At the beginning of his plan I had a really hard time with no longer using our credit cards for everyday purchases and getting points to redeem. My H was the one who pushed this more, and now I completely get it.

I don't have any credit cards and haven't used any for years. But I'm pretty obsessed with my Credit Score.

So after a certain amount of time with not using credit for anything, does everything just eventually drop off(good and bad)? I guess I'm confused by how it works. He never takes the time to explain on his show just starts yelling about not using them haha

brij2006 · July 2014

uncreatedsnow said:

brij2006 said:

uncreatedsnow said:

brij2006 said:

uncreatedsnow said:

Personally, I would cut them up but not close them. If they close on their own then that's fine.

I like Dave Ramsey but hate his approach to Credit Scores. I see where he is coming from, but that's pretty unrealistic to me. Also, it's much easier to have "zero credit" when you start out that way, but why hurt good credit or not try to fix bad credit if you can?

It's because you don't need a credit score to make purchases anymore. Paying cash = doesn't matter what your credit store is because you don't need credit.

I get that. I just don't like the idea of not having a score. I don't bank on getting to a point where I can pay cash for a house, and don't see them doing a manual underwrite on my credit as is so need to do what I can to improve my score now. It's a personal decision whichever way you go, but this is my personal pet peeve with DR.

Yeah it's definitely something hard to wrap your mind around. At the beginning of his plan I had a really hard time with no longer using our credit cards for everyday purchases and getting points to redeem. My H was the one who pushed this more, and now I completely get it.

I don't have any credit cards and haven't used any for years. But I'm pretty obsessed with my Credit Score.
So after a certain amount of time with not using credit for anything, does everything just eventually drop off(good and bad)? I guess I'm confused by how it works. He never takes the time to explain on his show just starts yelling about not using them haha

He has explained in the show that usually within 3-6 months after your last debt is paid (even the mortgage) then all of those accounts are still listed on your credit for the appropriate amount of time. If I'm remembering right they're still on there for 3-5 years. However, they will show zero balances and that you have zero liabilities. So that's what makes your score go down to zero within a shorter period of time. They don't drop off for a while, but your credit score is affected because there are no longer any outstanding balances.

I know that ours has already been affected quite a bit since paying off almost half of our student loans. We went from a, barely over 800 credit score in February, to almost maxing out in the mid-800's now. Since our available credit has expanded.

CuriousKiddosMama · July 2014

We follow DR too. We have one discover card open and that is it. We should probably cut it up, but it seems easier to have one for the couple times we travel. After buying our house we may finally decide to close it because then we will no longer care about the score, but closing it in the past year when we first thought about it just would have probably hurt us with the purchase of the new house.

jlaOK · July 2014

I'm a fellow DR follower. I would cut up all the cards and keep one for emergencies (if you want to). I'd get rid of the rest for fraud protection.

As far as credit score we haven't had credit cards for 4+ years. Our credit score stayed high because we still had our mortgage. We have traveled using our debit card and it has never been a problem. Hotels always just charge the amount of the room. Rental cars charge a small deposit but since we hardly ever rent a car that isn't a big deal either. The only issue is paying for a hotel with cash because they will put a hold on the full amount even when you hand them cold hard cash. Since paying with debit is the same as cash, I'll just always use a debit from now on.

MommyLiberty5013 · July 2014

brij2006 said:

Xstatic3333 said:

I'd keep the non-store cards open at least. When I didn't use CC at all while getting rid of my debt, I still kept one around for things like deposits on a hotel room. For some reason that stuff doesn't work great with debit cards. This is something I also differ with DR about. I'm with him on not using CCs, though I'm fine with using them for points it's no big deal not to. I just would prefer to keep a strong credit score for emergencies. Still, even if you follow DR's philosophy to the letter I think my reason above is a good one. You'll need a hotel room when you go see Harry Potter once you're debt free, after all

Hahaha. Oh yeah!
We actually used our debit card for a 3 night stay a couple of months ago, and I was shocked as to how easy it was. They just did a $50/night reserve on the card. So it was an extra $150 hold on the card, but we always have a $1k buffer in there. So it wasn't a big deal. H is going to use it this weekend for a 1 night hotel stay, so we'll see if it's just as easy.

I've always been under the impression that using a debit card for hotels is a PIA, but our friends always did it when we traveled together and never had an issue. It's definitely something new for us to get used to, but so far it's been a heck of a lot easier than I thought.

A DC is direct access to your funds. So let's say your hotel charge is $150, but the hotel attendant rings your card for $1,500.00 then you're checking gets hit that amount until the hotel and bank can figure it out. I saw this occur while I worked at a bank. A person wanted to DC their newspaper subscription. $240 for the year. The paper debited their account $2,400. It took a week to fix with the newspaper, and by then the family had to figure out other ways to pay bills since their extra money was virtually gone for that period of time until it got straightened out.

For this reason, and others, I avoid DCs. I see why they are better and handier than cold, hard cash, but they are like a portal into peoples' financial worlds.

I understand why DR says NO CCs. It's easier to say "no" to them across the board when he gives his talks, University and other materials then to treat people on a case-by-case basis.

I think he has a lot of great information to share. For people who have had no trouble with CCs in his program or who are "recovering" from CC trouble and know they will be responsible, CCs do have a place in a financial plan...emergencies...hotels...rentals...even reoccurring bills.

hoffse · July 2014

I agree with PP. Making massive charges to a debit card can cause huge problems with your bank account. I would keep 1-2 regular cards for large purchases/holds and for emergencies and maybe close the rest so you don't have to keep up with them.

Example of an emergency: my dad visited Kenya in the 80's and suddenly there was rioting and bombings while he was there. He had to buy a walk-up flight to get out of the country early, and he used the cash he had to bribe his way to the airport because the guards with machine guns weren't letting people pass without getting paid. He was only able to get the flight because he had a credit card on him (most of his cash was gone), and he bought the flight when he got to the airport. True story.

Debit swipes overseas also tend to incur higher transaction costs than credit cards. My banks charge between 3-5% for debit swipes. Whereas, I have multiple credit cards that charge 0%.

And generally, I think it's short-sighted to give merchants direct access to your bank account. A credit card provides a buffer between the merchant and your cash.

brij2006 · July 2014

@hoffse We actually run our DC's as credit so they are backed by Mastercard for any theft. My identity got stolen less than a year ago and the bank called me before I even noticed and had the money back into my account that instant. So someone stealing money out of my account and there being a hold for a while doesn't worry me. This happened on a Saturday night, and they called me to correct it.

Our bank also has zero fee's for international travel use since the card is considered a Mastercard.

Guess we've been very lucky that traveling with our DC has not been a hassle at all. The only time I've had a problem is with larger purchases, but we just wrote a check for that instead.

formerlyGDaisy09 · July 2014

I had my debit card information stolen by a local restaurant...I'll never swipe my debit card anywhere but an ATM (and I usually stick to my bank's ATMs) again. It was a massive headache to re-coup the nearly $3000 in charges to my bank account. My debit card is also backed by Mastercard.

stokesm21 · July 2014

Why have them hanging around if you don't need them? I had a card with a small limit, annual fee and no rewards etc. The interest rate was good but in the end not even worth it. I got another card that gave me a higher limit, no annual fee and offered "points." I simply did not want to have to think about the other card anymore so I paid it off and closed it. Not to mention it was a secured card so I go my initial investment back. I was worried about how closing one of my oldest credit accounts would affect my credit score but I was willing to take that hit (which it didn't do anything) over forking out a $70 fee every year. Now I just have the one.

@Gdaisy09 - That sucks! I had both my debit card and credit card compromised a few years ago and had absolutely no problems getting the money back. With my debit card they completely shut down access and had placed 3 calls to me before I even had a chance to notice something was up. (It was accessed in the middle of the night while I was sleeping! Got the messages from my bank when I woke up the next morning.)

HoneyBee973 · July 2014

I would close all the store cards, and all but one of the major credit cards.

I don't like to use my DC when shopping online, or making any large purchases.

cbee817 · July 2014

I would definitely keep a major credit card- with a baby on the way, you never know when you'll need it to cover something in a big emergency. You guys are disciplined enough where just keeping it somewhere safe won't be tempting.

formerlyGDaisy09 · July 2014

@stokesm21 This happened on a debit card I had from a local bank from my hometown right after I moved away after college. the only reason I know where the number got stolen was because I had randomly decided to use the card to pay for dinner from this place, I hadn't used it anywhere else in months. the bank still had my parent's address on file, they sent the overdraft letter(s) to my parent's house (3 charges for $900something to a grocery store in the UK) my mom didn't open the letters, so I got them when I visited several weeks after this had happened (I hadn't set-up online banking).

so it may have been my delay in addressing it that caused to to be a nightmare to fix...but ultimately I was able to convince my bank that I did not, in fact, purchase $3000 in groceries in the United Kingdom.

I like the security of my credit cards. I also have one card that I up the limit on whenever it's offered so that

1. I'm using a smaller percentage of my credit line as I continue to spend normally

2. in the event of an emergency I have a deeper credit line from which to draw before I'd have to extend my credit or borrow elsewhere.

This is something our financial advisor checks on whenever we meet with her, she likes that we're building our e-fund, but she always wants us to have a deep credit line to draw on in case of some (at this point probably outlandish) emergency. what would you do if you were in some situation where you just had to spend money and question it later? It's comforting when I'm traveling to know that if something happend and I had to cut whatever trip I were on short, that I have a deep credit line to draw on and I could get myself home quickly.

Our financial advisor also points out things like, what do you do if when your fridge dies on you (in the winter the answer is stick all the food outside

), or a tree falls on you house...you may have cash or insurance to cover it, but you may want to give yourself a grace period (i.e. a statement cycle to "prepare" for the cost) or to start repair work before insurance money comes through.

So even if you avoid using credit cards most of the time, it may not be a bad idea to keep one or two open "just in case".

Sisugal · July 2014

I would keep the longest held major credit card and use it occasionally for something small (gas?) and then pay in full each month. The rest I would close - one or two at a time - every other month or so - until they are gone.
Make sure you have a good emergency fund in place
Have an adequate allowable limit on that one major credit card remaining should there be a reason to really need it.

MM Thoughts on closing Credit Cards

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