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Canceling Credit Cards

Was your New Year's resolution to get your financial life in order? We're well into 2002, so it's time to get going! Steve Rhode, the founder of a financial crisis Web site called Myvesta.org, says one way to reign in your debt and spending is to cancel some credit cards. Rhode says the typical consumer really only needs two to three pieces of plastic. With fewer credit lines open, he says you'll be less tempted to buy, buy, buy.

Canceling Considerations

But, before you cancel your extra cards, there are some things to consider:

One at a time.

Rhodes advises you to only cancel one card at a time. Canceling too many at once may set off some suspicion with the credit reporting agencies and lower your credit score. "One thought is that it shows you're having financial problems because all of a sudden you're closing all the credit that's out there and available to you, says Rhodes." So, if you're planning on taking out a mortgage or car loan in the next few months, you may want to hold off. It could actually worsen your chances of getting favorable terms.

A balancing act.

It you have a balance left on your card when you cancel, the creditor can raise your interest rate to the maximum allowed...depending on your agreement. So, make sure to read the fine print carefully. "You may find that your interest rate goes up 10, 15 points. That's kind of a penalty rate. Thanks for being a customer. You're not anymore. So, we're going to stick it to you," Rhode says.

Are You a Credit Card Addict?

Here are some warning signs you can look out for. Ask yourself these questions:

Are you unclear about your financial situation?

Do you know your bank account balances, monthly expenses, how much you owe creditors, loan interest rates, fees or fines?

Do you only pay the minimum on your credit card bills each month?

If you think paying the minimum makes financial sense, think again. Holding a large balance could send you into a vicious cycle of debt. For example, if you charged a new computer that cost $2,500 on your credit card that carries a 15% interest rate and only paid the minimum payment each month, it would take you 24 years to pay off that balance and cost you a whopping $6,000 in interest! But, if you paid $25 extra each month, you would save almost $2,600 in interest and cut 18 1/2 years off that repayment time.

Do you borrow money and items?

Do you frequently ask for small loans from friends and loved ones? Or, do you ask to borrow things and never return them?

Do you have poor saving habits?

Are you prepared for retirement or tax season? Do you have a "live for today, don't worry about tomorrow" attitude?

Are you a compulsive shopper?

Another warning sign is impulse shopping. Is the mall your haven when you're having a bad day? Is it hard for you to pass up a good deal?

Do you have trouble meeting financial obligations?

Is it an effort to pay your rent or mortgage each month? Or, is your car payment notoriously late?

Do you have a tendency to live on the edge?

If you're living paycheck to paycheck, you could be a credit card addict. Do you use one credit card to pay off another? Or, do you write checks hoping that money will appear to cover them?

Debtors Anonymous, NoDebt.org

Money Saving Tip!Did You Know?

If your credit card balance is $8,000, and you make the minimum monthly payment at 18% interest, it will take you 25 years, 7 months to pay the debt off. You will pay $15,432 in interest charges, (almost twice the balance), bringing your total to $23,432.
NEWAY, a non-profit debt counseling company

__________________

Only 42 percent of Americans who have credit cards say they always pay off the full balance every month.
Gallup Poll, 2001


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