Credit Cards

[grob10]

I have two credit cards and was contemplating getting rid of one but I'm also thinking after I get one cleared I should keep for emergencies rather than cancelling. What do you guys think is best and why? #confused

[bjl584]

How old is the 2nd card and what is its credit limit? If significant on one or both of those factors, then closing the account could negatively impact your credit score.

Do you have an Emergency Fund? If not, then start one today. Strive to save 3 to 6 months worth of expenses. Use that to fall back on for emergencies, not a credit card.

I'd pay the card off, then leave the account open, then start saving up a EF.

[kork13]

How old is the 2nd card and what is its credit limit? If significant on one or both of those factors, then closing the account could negatively impact your credit score.

Do you have an Emergency Fund? If not, then start one today. Strive to save 3 to 6 months worth of expenses. Use that to fall back on for emergencies, not a credit card.

I'd pay the card off, then leave the account open, then start saving up a EF.

Agreed with BJL -- The consideration as to whether to close the card is strictly related to your credit score. If you feel that you would need to have the credit available "in case of emergencies", there are larger problems that need to be addressed. Using a credit card for an emergency only causes more trouble for you if you aren't able to pay off the CC bill at the end of the month... You get saddled with long monthly payments & high interest rates.

You need to have an emergency fund. Even if you start out with just $1,000-$2,000 you can start there and slowly build up to the 3-6 months' expenses that you should preferably keep on hand. With a proper emergency fund in savings, credit cards can work FOR you, rather than you working to pay off the credit cards.

But to answer your direct question, unless the card has a monthly/annual fee attached to it, no specific reason you shouldn't just leave it open... Keep the card, and start building an emergency fund.

[figuringmoneyout]

I agree with the previous responses. An emergency fund is best so save up that once you pay off the card. I'd keep it open just to have and so your credit score doesn't drop, but it's best to have cash in the bank to cover emergencies that come up!

[snafu]

grob, there are some valid reasons for keeping a paid-off CC rather than cancelling it. Your credit score is related to the percentage of credit you use of credit issued. The higher ratio of credit used to credit available can cause the credit grantor to increase the interest rate. In the future application for other credit can be denied based on that usage figure. I suggest that you store your older CC in a secure place in your home. Get it paid off but don't carry it with you.

How much do you owe on CCs? What is the interest rate? How much are you paying in interest? Can we help you find ways to get both cards paid down?

[dczech09]

It depends on if you plan on borrowing money in the future...

If you plan on borrowing money in the future (such as a mortgage), then you will want to keep your credit score high. Assuming your credit score is already up there, then using the credit card and paying it off every month (pay within the grace period to avoid interest) will help maintain your credit score.

If you are like me and do not plan on borrowing any money ever again (not even for a mortgage), then you should cut up the credit card and close the account. No reason to keep a credit card if you never use it and don't need to build up a credit score. Essentially you just have another account that could POSSBILY be subject to identity theft (however unlikely it may be to occur).

I would only cut up the credit card and close the account once you have AT LEAST $1,000 set aside for emergencies. You also need to be on a set plan to build up your emergency fund.

So it ultimately depends on whether or not if you want to have a relationship with debt going forward. If yes, then you need to keep your credit score and a credit card is a tool for that. If no, then you do not need your credit score, thus the credit card really is unnecessary. A credit card really is a "debt score" in the end.