Paying off debt - should we cancel credit cards?

[dealsaver]

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.

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]

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

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]

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

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]

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

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]

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

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.