Paying off debt - should we cancel credit cards?

[Tree0164]

Re: Paying off debt - should we cancel credit cards?

If you are paying off debt, I would have a smaller emergency fund and focus on getting the credit card debt paid off. Once you get the debt paid off, then you can focus on getting a bigger emergency fund.

[niki_the_tiger]

Re: Paying off debt - should we cancel credit cards?

I personally believe that both ways can work for different people... building an emergency fund first, then paying off debt, or paying off debt before building up an emergency fund.

I like having a savings account, because I know that if we're not careful, my husband and I can easily reuse the credit cards (though now we're determined, so we will be good).

I think I will continue to put any "extras" in the emergency fund (and starting January, my hubby said we'll probably put the extra money we were getting taken out for taxes - thanx for the idea - after reminding him about the interest free loan to the government versus getting 3% interest (or more) from ING Direct, he liked the idea of us keeping the money instead), but mostly focus on paying off credit card debt.

Thanks to being really good with money for the past couple of weeks and my hubby getting payment for one of his jobs he did, we were able to bring down debt by just over $1000 yesterday. Woohoo! That is the first time in a YEAR that debt has gone down.

I will be starting to use Quicken this week to keep track of everything we spend and to make a budget. And Tuesday we want to call and ask about that loan, and also maybe get rid of a few newer credit cards (like Old Navy).

[BAGAGT1]

Re: Paying off debt - should we cancel credit cards?

When trying to work your way out of debt, I think it is imperative that you have an e-fund, otherwise, any emergency will have to be covered by a CC there by enabling the viscious credit cycle to continue. In my opinion you should cancel any credit card that you are not going to use in the near future, ideally, you shouldn't have more than one credit/store card that would only be used for extreme emergency. Keeping a card because of the "sales" that stores offer makes it that much easier to spend money you don't yet have, get rid of them, chances are you can find better deals on your own.

[Tree0164]

Re: Paying off debt - should we cancel credit cards?

Great job Nikki on getting that credit card debt down.

I think we all have our comfort zone on emergency funds and have to chose what is best for us.

[niki_the_tiger]

Re: Paying off debt - should we cancel credit cards?

Woohoo!! I'm so excited.

We got a credit card offer in the mail that gives us 0% APR until January 2007 on balance transfers. We called them up, figuring we could maybe get one of our credit cards rolled over onto that card, maybe two at best... but we ended up being able to put ALL our credit card debt onto it!!! So now we don't have to go get the loan after all and it's 0% instead of the 7.9% or 8.9% they probably would have given us at the bank (if not more!).

We're super excited now... 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! And after January 2007, it only goes up to 7.9%... which is lower than all our other cards, and probably what we would have gotten with the loan! Amazing!

We're jumping up and down with joy right now... we want to pay off our debt in a year, and this has just made it that much easier!

(We're also waiting for someone to call and tell us they made a big mistake and sorry but no we can't give you that amount)

And yes, all our other credit cards are getting either cancelled or put away so that we don't use them. We're going to try to use just cash from now on.

[cercis]

Re: Paying off debt - should we cancel credit cards?

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]

Re: Paying off debt - should we cancel credit cards?

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]

Re: Paying off debt - should we cancel credit cards?

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]

Re: Paying off debt - should we cancel credit cards?

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]

Re: Paying off debt - should we cancel credit cards?

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]

Re: Paying off debt - should we cancel credit cards?

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]

Re: Paying off debt - should we cancel credit cards?

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]

Re: Paying off debt - should we cancel credit cards?

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]

Re: Paying off debt - should we cancel credit cards?

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]

Re: Paying off debt - should we cancel credit cards?

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.