Should You Ditch Your Credit Card?
Are you considering breaking up with one or more of your credit card companies? You are not alone. A recent Consumer Reports survey found that 32% of credit card holders have canceled a card since January 2008 because they were annoyed by the way their card issuer was treating customers.
About half of the people who closed accounts said they were angry about practices such as raising interest rates, cutting credit limits, or hiking fees. Also, 21% said they were themselves treated unfairly by credit card companies.
Falling Consumer Debt
The growing outrage of consumers, plus their desire to cut back on spending, is resulting in a deeper drop in outstanding consumer debt than experts expected. Credit card debt dropped 13.1% to $899.41 billion in August, according to the Federal Reserve. That was the 11th month in a row that credit card debt fell.
How to Break Up With Your Credit Card
If you want to break ties with your credit card company--whether to discipline your spending or to switch to a credit card with better features--follow these steps:
- Stop using the card. That means cutting up your card, burying it, throwing it in the ocean...whatever. Just get it out of your wallet so you won't be tempted to use it.
- Pay more than the minimum so you can get that debt paid off once and for all. Stick with only the minimum payment each month, and you'll be paying that credit card for many years to come. Pay off the balance on the card you want to close.
- Call your credit card company to close the account. Be prepared for your card issuer to offer you a lower interest rate, balance transfer offer, or some other perk to keep the account open. If your goal is to get rid of a card, don't be taken in by these offers. Ask for a letter that confirms that you requested to close the account.
- Follow up your phone call with a letter that states that you want the account closed. Mail the letter certified, with a return receipt, to make sure that you have documentation that the company received it.
Effect on Credit Score
Your credit score may drop some in the short term if you close a credit card account, because the credit scoring formula is partly based on the average length of time you have had credit accounts open to you. But if your goal is to cut your exposure to open credit lines to avoid running up more debt or becoming a victim of identity theft, a dip in your credit score is a small price to pay. Besides, it's not as if your score can't eventually rise again if you handle your finances responsibly and make bill payments on time.