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Should I Cancel My Credit Cards to Eliminate My Debts?

Posted on February 4, 2011

During the process for repairing your credit, debt reduction with the goal of debt elimination is the typical starting place for most consumers. Credit card debt is often the biggest problem in the credit repair equation since missed and late payments or too much credit card debt is the reason your credit needs to be repaired in the first place.

Immediately when learning credit cards are maxed out and bills are too high to pay, many consumers will instinctively want to cancel their credit cards to help them resist the spending temptations which got them in trouble in the first place. But canceling credit cards is one of the biggest credit repair mistakes people can make and doing so, especially to multiple accounts, can be devastating to your credit score.

Here are some things you need to consider about credit cards and credit repair:

Oldest and Dearest Cards Mean Most

The credit card account you opened first means the most to your credit score. Part of the calculation for determining your three digit credit score is the amount of time for which you have established credit. By closing the oldest credit card account, you are essentially erasing part of your credit history which can drop your credit score.

Closing Cards With Balances Is A Bad Idea

While your intentions may be good in avoiding temptation, closing out credit cards that still have an outstanding balance on them is rarely a good idea. First of all, the credit card company may choose to raise the interest rate on the card once it is closed, since you may be viewed now as a bigger risk to default. Secondly, because you know the card is closed and no longer much good to you, you may be inclined to not make payments on the balance as you should in favor of other money matters. A rise in interest rates means you will pay more out of your pocket for your credit card balance and it also means you may spend more cash due to over the limit fees, late payment fees, or missed payment penalties.

Less Chance for Credit Repair

When you close out your credit card accounts and the actions wreak havoc on your credit score, you may also be short-changing yourself for repairing your credit. Using credit cards effectively is one of the important ways for you to boost your credit score. If you close accounts and negatively affect your credit score, you will have fewer resources to use to build your score back up.

Closing Accounts Only Temporary Solution

While you can help curb impulsive shopping habits by eliminating credit cards from your life, cutting up your cards and closing your accounts should be your last resort for controlling dangerous spending habits. If you do have a problem with impulse buying and spending, it likely means you need more help than closing cards will achieve. You may need to see out the assistance of a credit counselor to help you analyze your budget and how you are spending your income. Don’t rely only on ‘out of sight, out of mind’ practices to control your spending.

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