When I decided to get out of debt, paying off my credit cards was my top priority. At one point, I owed over $12,000 to various creditors, and about $2,500 of that was nothing but interest payments. Now that I no longer owe anything substantial to these companies, I'm tempted to close the accounts as I pay them off to prevent any future spending on credit. I never again want to be that indebted to people who can't easily be reached by phone.
Closing Accounts Is a Bad Idea
The problem with closing the accounts as they are paid off is that it will do me more harm than good. If I close my credit card accounts as I pay them off my credit history will be impacted in several ways. It will lessen my available credit. It will also remove the account history from the lender's side. However, any missed or late payments I ever made will continue to appear on my credit history. So if I close my accounts, even after paying them off, my credit score is likely to be negatively affected.
Using Credit For Emergencies
I don't like using credit cards at all. I have learned my lesson, and if I can avoid using them, I will. But when emergencies happen that I don't have the funds to cover, they're good to have stashed away. What I know now that I didn't quite understand in my 20's is that needing something to wear this weekend and not having the money to head to the mall is not an emergency. Neither is being invited out with friends when I've already blown through my entertainment budget. A true emergency is rare, but when it happens, it's nice to be able to deal with it promptly. If it requires credit to handle, so be it.
Cutting Up Credit Cards
Some financial gurus recommend cutting up your credit cards. I'm not a fan of this idea, because I'd rather use self-discipline than literally cut off my access to my own accounts. If I find that I simply cannot exercise self-restraint, cutting my cards up will be my last resort. I'm trying to develop new habits in my approach to money, and I think just taking away my ability to exercise responsibility isn't giving me a chance to choose more wisely. I won't spend on credit anymore because I know that doing that is not in my best interest.
By getting myself out from under the burden of credit card debt, I have freed up resources that I can put toward ensuring I won't be in the same financial trouble in the future. It has also helped me to redefine what success really means. I used to think it meant being able to get what I wanted, even if I had to borrow money to do it. I now understand that having what I want at any cost does not feel as good as being able to actually afford the things I need. These days, I'm stashing away the funds I used to send to those credit card companies instead of heading out to the mall. And I feel successful every time I decide not to spend money I do not have.
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