Paying off debt - should we cancel credit cards?

[cercis]

niki, be careful with that card. Watch them like hawks. Make sure you are NEVER late on any payment, anywhere (even payments to other companies). There is almost always fine print that says anything negative reported to your credit will result in a raise in interest rate (often to 19%+).

We had that happen to us. We were reported as late when we weren't late, they just didn't key in the payment on time (the check was canceled before the payment was due, I have no idea what their issue was). The reporting company cleared it up, but since it had been reported the cc refused to budge on the interest rate hike.

You also have to watch citibank. They like to play with due dates. Say your cc payment is due on the 6th each month. Watch out, next month it may be due on the first or you may actually have 2 due dates in the same month (happened to dh, it was due on the 5th for years and then one month it was due on the 5th and the 28th, he made them waive the late charge and lower the interest rate, they did, surprisingly).

[niki_the_tiger]

I take care of all the bills at home. This will actually be a relief... one credit card payment instead of trying to keep track of 4 or 5. We will most likely be making several payments per month also. Thanks for the heads up though, we will be very careful with that.

[niki_the_tiger]

Hi guys. I thought I would read over this thread and see where we started and where we are now.

Joshua and I both read Dave Ramsey's book "Total Money Makeover" and decided to follow his plan. 1st Step: $1000 emergency fund. Done! Woohoo!

Then we tallied up all our debt (minus the mortgage). This time we included the Jeep loan and each of the courses we are taking from Education Direct. I originally did not want to include that in our debt, as to me it wasn't debt... just a monthly payment with 0% interest, but like Joshua pointed out to me, it's still a $70 payment that could be put towards our debt snowball. So here were the "new" beginning numbers.

Debt as of October 16, 2005:
Credit card 1: 17.76
JcPenney Credit card: 76.82
Joshua course: 222.00
Niki course: 180.00
Credit card 2: 979.00
Credit card 3: 1500.00 (this one is actually inventory I bought for selling on Ebay, but we decided to include it anyway)
Jeep Loan: 4139.61
Credit card 4: 7900.00 (the card we got that has 0% on it, where we consolidated all our credit cards to)
Grand Total: $15015.19

In the past two weeks, we've been able to pay things off, due to Ebay sales and money coming in from various jobs. So here are the current, up-to-date numbers on October 30, 2005:

Credit Card 1: 0.00
JcPenney: 0.00
Joshua course: 0.00
Niki Course: 0.00
Credit card 2: 647.00
Credit card 3: 1480.00
Jeep Loan: 3982.96
Credit Card 4: 7897.17
Grand Total: $14007.13

It's so exciting. And we were also able to pay off the car insurance in one lump some too, saving us $20 in fees.

Thankfully, I think we caught ourselves before we were in too deep. We are hoping to be all paid off by June (maybe wishful thinking, but that's our goal - even sooner would be even better!). Then we will work on getting 3-6 months expenses in savings.

It's hard though to not spend money... even on little things. We have to be watchful... it's easy to think, what's $1 or $2 or $5?? But they add up quick!

I'm trying to read a lot on being frugal. My hubby wants to start his own business, but we need our debt gone and savings in the bank before he can, so the sooner we can get in the positive, the better. If anyone has advice on how to get those numbers down more quickly, I'm all ears (or eyes?).

[vince]

Niki

Keep up the good work, I see you read Dave Ramseys book good for you. sign up for his free newsletters online. also the yahoo finace page has some good advice.
Good luck I will be watching
Vinny

[EHadden]

Niki,

Good for you on the massive clean up taking place (would really like to take a look at that book), but I came into the thread hoping to see that question about cancelling the credit cards. I am wondering, as I am getting things paid off myself, about the effects of cancelling credit cards that are zeroed (sp?) out. I currently have 4-5 cards that I have had since college (am nearly 30 now) that have zero balances, but think that if I close them out, I hurt my credit score because of the "average length of the account." But in contrast, I am wondering if carrying a high level of unused revolving credit hurts my score as well. I have it, but I don't use it...I'm still too busy cleaning up the other accounts that I have amassed since college. Any thoughts from you OR other members of the forum?

[lexi_kaye]

I think one of the most important things to do is to sit down and figure out (on a program like snowball) if I pay x when will that credit card be paid off. When you have a time frame (like June) that you like, stick to the amount you need to pay each month to acheive that. Period. No ifs and or buts. Always pay that monthly amount and never deviate, for any reason whatsoever, ever. Otherwise, your goal time will arrive and you won't have made your goal. Make a realistic budget that you think you can stick to, like maybe $50 a month for eating out or entertainment. When that is gone, it is gone. Spend wisely. You can get several nights out if you plan well and then you don't feel like you are depriving yourself just to get out of debt. Personally, I think the feeling in the end will all be worth it, but I know it is a hard road getting there and you feel somehow cheated out of things. Another way to make a little bit quicker progress is pay your credit cards based on your paydays. So, for example, I get paid every two weeks, so I have figured out my monthly payments to all my credit cards, and divided into two. I then make that half payment amount every two weeks to each credit card. Period, before I spend anything, the morning of payday, I get online and make all the payments. Done. Whatever is left, is mine but I pay those credit cards. The bonus is you are making a small dent in your average balance per month by making two payments and your interest will be slightly smaller, and you are actually making a couple extra payments per year per card. I have gotten a lot of great advice from this forum and am finally on the steady and straight path of debt elimination!

[sweeps]

Originally Posted by EHadden

I came into the thread hoping to see that question about cancelling the credit cards. I am wondering, as I am getting things paid off myself, about the effects of cancelling credit cards that are zeroed (sp?) out. I currently have 4-5 cards that I have had since college (am nearly 30 now) that have zero balances, but think that if I close them out, I hurt my credit score because of the "average length of the account." But in contrast, I am wondering if carrying a high level of unused revolving credit hurts my score as well. I have it, but I don't use it...I'm still too busy cleaning up the other accounts that I have amassed since college. Any thoughts from you OR other members of the forum?

I know it's a commonly discussed topic on the forums, but I'm not a big fan of micromanaging your credit score. Sure, your score could possibly go down 5, 10, 20 points if you close an older account. But take a look at the big picture.
1. Your score is constantly fluctuating. You can go crazy trying to manipulate it.
2. Even if the score goes down a bit when you close the account, it's not by much and it will go back up. (Probably higher because of smart credit management.)
3. Some companies don't use FICO scores and others use it as just part of an approval process. Those that check your credit report will be happy to see you have fewer revolving accounts open.
4. For many people, the temptation to use those extra 0-balance credit cards is too great. Close them and make it easy on yourself.
5. Is it worth having these unused accounts open? Each credit card that you cancel is one less card that can be lost or stolen. This reduces your chance of identify fraud, which can take months or years to fix.

[jmjj215]

that 0% will save us about $125 (after doing rough estimates) per month that would typically go to interest... now that amount will be going straight towards the balance!

That is the key to surfing rates.

Just wanted to make that clear - and give props to Niki for the major whopping she and her Dh are giving those debts. woooopaaahh!

[dealsaver]

Originally Posted by niki_the_tiger

Is it a good idea to cancel our credit cards?

-Niki

WARNING: THIS IS NOT FOR NOT FOR THOSE WHO ARE UNSOPHISTICATED IN MATTERS OF CREDIT AND FINANCE. IF YOU MISUSE THE INFORMATION IN THE FOLLOWING LINKS YOU RISK FINANCIAL OBLIVION!

You could just apply for more cards and step into the dark side ... apporama Anyone willing to learn can, over time, make a nice income by using the techniques in the link above, along with the following links:

App O Rama II
Credit Cards that offer cash bonus for applying
Heloc flipping
Credit Card BT Investment thread
LARGE credit lines thread

Follow the Blue Guy and the Bull Dog... Dave Ramsey is clueless!

[mom-from-missouri]

I asked my banker friend your question at lunch. Here is her reply.
If you have too many cards, creditors (ie banks, mortgage companies...) can view you as a risk-because if you used them all, you possibly could not pay them all off.
There is a fine line. You need to most likely keep 1 or 2, to use for emergencies. But she says if she sees someone with more than 5 or 6--it throws up red flags to her. EVEN if they are all paid up. She says though, that banks should take into consideration what the cards are for. For example, is one strickly for mr at work, one for mrs work, one for the farm, one for department store...also they look at how often do you use cash advances?? if you do it locally all the time from home--trouble--but, if they see you did it while out of town or vacation, they realize people may have emergercies and such.

[dealsaver]

Originally Posted by mom-from-missouri

I asked my banker friend your question at lunch. Here is her reply.
If you have too many cards, creditors (ie banks, mortgage companies...) can view you as a risk-because if you used them all, you possibly could not pay them all off.
There is a fine line. You need to most likely keep 1 or 2, to use for emergencies. But she says if she sees someone with more than 5 or 6--it throws up red flags to her. EVEN if they are all paid up. She says though, that banks should take into consideration what the cards are for. For example, is one strickly for mr at work, one for mrs work, one for the farm, one for department store...also they look at how often do you use cash advances?? if you do it locally all the time from home--trouble--but, if they see you did it while out of town or vacation, they realize people may have emergercies and such.

Fortunately, many credit decisions today are made by computers and not people. Even when you are initially denied credit through a computer review, speaking to a credit analyst and giving the right answers can still result in approval. If you know how to game the system, acquiring 20-50 cards with a combined credit limit of $250,000 -$1,000,000 is not impossible(over time, not all at once).

[Fern]

I agree with sweepsplayer. Cancel cards you're not using.

Why?

If you accumulated $15K in debt, you don't want that to happen again, and saying you will have willpower and discipline is fine, but doesn't always work.

Also, it's my understanding that even if you have multiple credit cards that are paid up, it can make it harder to take on a loan (for instance, a mortgage), because they look at the MAXIMUM amount of debt you potentially could take on. So if you have a credit card with 0 balance but a $10,000 spending limit, the bank will count that as $10K worth of (potential) debt. That's what i've been told.

Another reason to get rid of cards you don't need is it reduces the chances for identity theft.

[PennyPincher]

Just another thought ~ For those of you that are not comfortable with cancelling the cards (yet):

Call each one of your cards that you don't intend to use, and get your credit limit down to the minimum they will offer. This will reduce your overall potential debt. And give you some time to make the decision to cancel.

I recently realized that when I applied for a Macy's card...they ending up giving me a Macy's VISA. So...it's technically like 2 cards...I strangely have a limit on Macy's purchases, and on Visa purchases. One limit was $1500, which I wanted. The other was $6000!!!!! I took care of that ~

[Firefly]

Originally Posted by niki_the_tiger

My husband and I sat down the other day and realized it's time to stop spending and time to start paying off debt. We would like to pay it all of in 12 months (by September 2006). It's a big goal, but even if we don't get to $0... as long as we get as close to it as possible, we'll be happy.

Oh btw, I'm not talking all debt as in mortgage too... but more specifically credit card debt. If we could manage to pay off our Jeep loan too, that would be great, but that might not happen (and would be too much to ask of ourselves).

We tallied up all our credit card debt last night (this includes my husband's business credit card) and the total came to just over $9000. With payments that are due my hubby we should be able to bring it down to $8300 by the beginning of this September.

All the 0% offers ran out on our cards, so now we're paying 12.99-15.99% interest on all the cards (JcPenney has a balance of $300.00 at 22%). We realized that we are spending an awful lot of money on interest... and that money could be going to paying off the balances, so we decided we would check into getting a personal loan, which will hopefully be under 8%.

Do you think that's a good idea? We would probably get it for 3 years, so that the payment would not be more than what it is now, separately. Then, at worst, we would bring it to zero in 3 years, but we fully intend to put as much as possible towards it. Also, because a good chunk of that is my hubby's business credit card, whenever he gets paid for jobs he does (www.phoenixtuning.com), he can put that towards it.

We also intend to put our tax return towards it, as well as any extras we get throughout the year. We figure with less money going towards interest and more towards the balance, that will help lower it quicker as well.

As soon as we get the loan (if we can get the loan), we want to cancel most of our credit cards. We still need the business credit card and as we own a duplex and don't have much of a savings account, we need to have a bit available for emergencies, so we are thinking of keeping one high balance card (meaning the highest balance card to serve for both purposes). Is it a good idea to cancel our credit cards? How will that affect our credit score?

Any advice is appreciated, thanks!

-Niki

IMO too many people get these loans, pay off their credit cards, then end up realizing all their cards are paid off and rack them right back up again, ending up with twice as much debt. I think it would be wiser to start with the low balance, high interest cards and pay them off first. Then once that card is paid off, use the money you were using for it, towards the next card until that is paid off, and so on and so on until your debt is paid down. I also wouldn't close out all the cards, I would close out some but keep ones you have had for a long time and do not use them again. Maybe freeze them or something, It will look better on your credit than closing them all out.

[niki_the_tiger]

I think we will cancel some of the credit cards, and keep others. Not sure which ones just yet. Once we have the biggest credit card paid off (the one that has the 0% apr), I think we'll keep that one, as it will be 7.99% apr after the promotion period, and it will have the biggest balance, thus meaning we will only ever need that one. We might keep the oldest one too, just cuz it has the longest record (but not ever use it).

We paid off a *little* bit more debt, but we just got the water & sewer bill for our duplex, so we will be working on that right now ($412.48 uggh). And we must insulate our attic (which will end up saving us on heat expenses but for now is an *ouchie* expense) and the garage too needs electrical work and insulation (my hubby's business is run out of it). He toughed it out last year, but now he's in there 4 days a week sometimes so when it gets to be 40 below... it's hard for him to work out there.

But my Ebay stuff is doing pretty good right now, so we should be able to knock that debt down by another $500 or more pretty quick.