I have been talking about Dave Ramsay’s plan of financial peace. While my husband and I both agree that this is something we would like to do, in this consumer-crazy credit card world it is hard to see a future in which we will not have any cards—one emergency card, right? Right?!—or carry balances. In the past, I admit, I’ve given up because my husband is more prone to pull out a credit card. I have always said that it takes a united front to make it work, and while I think that is certainly the best way to accomplish such a goal I also think that it takes one person to begin heading in the right direction.
I am going to be that person. Today I took the first step: I called my credit card companies and got the interest rate for each card. I have to admit that I was quite shocked at 15% and above interest rates. That only helped to steel my resolve, and I cut up my first credit card. When I pay the balance—which is admittedly quite small, anyway—I will no longer have access to that card or the credit limit.
Now, you might be wondering what I didn’t just cancel the card? By having the account open, I still technically have access to the funds. While that’s true, it would take about a week and a half to get the new card, which means I would be nudged to find another way to pay for a purchase, or put it off if I couldn’t afford it without the card.
And also, canceling your credit cards decreases your credit score. Why? Because it decreases your debt to income ratio. Let’s say that I have credit cards equaling up to an available credit of $15,000. I am carrying balances of $9,000. That is a lot of money, but still a good distance from what I am able to spend. If I close a card with a limit of $3,000 that takes my available credit down to $12,000, and puts me dangerously close to maxing out my available credit limit. As such, the credit bureau sees you as a higher risk.
As I pay off these balances I do intend to cancel these accounts one at a time. We will take it slow. While there is a lot of work to do I am very happy to have taken the first step today!