Did you cut up your Credit Cards Dave Ramsey style?
@frugalmoneymanager (113)
United States
December 12, 2006 5:16pm CST
I have just finished paying off $3289 in credit card debt. It took me 1 year and 2 months of scrimping, and saving, and doing without to pay it off.
But, I am now debt free (except for my mortgage).
I have cut up most of my credit cards (as Dave Ramsey preaches), but I have 2 cards that offer cash back rewards when you use them.
I am finding it difficult to cut these cards up, because I can earn money by using them to purchase every-day items.
It seems silly to NOT get the cash back on things I am going to buy anyway, since I will deduct the charges from my check register as though I am paying by check.
And I will pay the credit cards every 2 weeks, so there will not be a balance.
But, that mantra (don't use credit cards) keeps running through my head, and it is a hassle to keep up with the payment due dates, and making sure a balance doesn't carry over.
What do you think? Should I cut up the credit cards, and avoid the hassle altogether, or use them to earn the small cash back reward?
1 person likes this
7 responses
@mef623 (81)
• United States
27 Dec 06
One important thing to keep in mind, though, is that your credit rating is partially determined on your "credit utilization." Essentially, if you use a very low percentage of your outstanding credit, that actually improves your score since you are deemed to have plenty of room before maxing out. Thus, the irony of the situation is that you could risk hurting your score by getting rid of all your outstanding credit availability or cancelling your cards.
Keeping a couple cards open is a great idea and helps you out in case of emergency. The cash back won't do you any good, though, if you don't pay off your bills each month, since the interest you pay will far exceed your cash back.
Congrats on paying down your balances!
Mike
1 person likes this
@frugalmoneymanager (113)
• United States
28 Dec 06
Thanks, Mike. Those are great points. I've just recently learned about credit utilization and how it affects your credit rating.
I was under the impression, like many people are, that once you pay off your cards it's best to close the accounts. And, actually that isn't a good idea. Leaving those accounts open (even if you don't use them) looks good on your credit report because it shows how much credit is available to you and keeps your utilization rating low.
I heard something not long ago about a man who had a million dollars of credit available to him through credit cards. He had kept open every credit card account he ever had, but didn't use most of the cards. It had improved his credit rating, even though he didn't use the cards.
1 person likes this
@estarga (1188)
• United States
27 Dec 06
If you have the self control not to use them often and when you do use them you pay them off, then I would keep them. The cards only affect you credit when you use them and pay them if you just have one and never uses it, it does nothing for you. Before I purchased my house my score was kind of low. I got a credit card (I didnt have one because I didn't believe in having one) and used it and paid for it for 3 months and my score went up just that fast. I was in a house a month later. So if you want to keep that score up you should keep at least one and purchase little stuff on it.
1 person likes this
@frugalmoneymanager (113)
• United States
28 Dec 06
That's a good point. Using a credit card responsibly will improve your credit rating. So, if you want to buy a house, it might be a good idea to have a credit card. But, use it carefully and pay it off each month.
@DIXIE444 (123)
• United States
1 Jan 07
CUT THEM UP TOO !!
If you are truly following Dave Ramsey's plan, you will realize that the little bit of cash back that you are getting from the cards, you are paying in interest or finance charges.
My husband and I went through the Financial Peace classes last year and we have paid off 29 maxed out credit cards and cut them all up in the class. We have left 2 sears cards and the car and house to pay off then we will be debt free.
Credit cards are nothing but bad news.
Go ahead and cut them up and use your debit card for any purchases and realize that credit cards are "giving" you nothing. They are in business to make money not to give it away.
@shirgie (230)
• United States
13 Feb 07
It is hard to say what you should do. In my case, I don't see us cutting up our cards anytime soon. We pay off our balance every month. Hubby and I actually have separate cards so we don't get confused as to who spent what. This is a hard day and age to live without a credit card imho. Although my credit cards are reward cards, that isn't why I wouldn't want to give them up. I think they make life easier. From paying for gas outside at the pump, ordering online and saving on writing out checks, I just wouldn't really want to be without one myself. I guess it is really up to whether or not you can trust yourself to pay the card off every month or not. If you spend more because of the credit card then that would be another reason not to use it. It seems that only you really know if your life would be better with or without a credit card.
@Hew208 (25)
• United States
14 Jan 07
The "CASH BACK" is a scam. Cut up the credit card. Find other credit cards that charge you 1,2,3,4,5% less when used. The little that you preceive you are saving is going to cost you if you miss a payment. Since you are only getting your money (the money you paid) it is better to not pay it to begin with.
Now that you are debt free, funnel your payments into equity. Real Estate is a big one. You said you own a mortgage, prepay the principal. A $1,000 principal payment in one year will save you interest payments equal to (6) times over 15 years.
@frugalmoneymanager (113)
• United States
15 Jan 07
Well, I wouldn't call it a "scam" since I did get a check for $91 from them. I've also gotten a $30 credit on a purchase.
I do see your point though. I've never missed a payment, but one time I did have a CC company credit a payment late. It wasn't late and when I disputed it, they removed the charge. But, it was a hassle.
I've decided not to use credit cards unless I am making an online purchase. I've set everything else up to be paid with my debit card.
@ScrappinHappyMom (914)
• United States
21 Jan 07
I use one of my cards to buy groceries every week because I get cash back. However, I buy the groceries on friday and monday morning after the charge has gone through on the card, I sit down and pay the bill in full every week. This is very hard to do and takes great disicpline to not say well I am a little strapped this week I will wait and pay it next week. That is how you get back in bad debt. I feel if you can use the credit wisely after learning the hard way then credit rewards are excellent because it is like free money and who can turn that away. Just remember to no matter what pay that bill off every month before it gains interest.
@frugalmoneymanager (113)
• United States
22 Jan 07
I think you see it the same way I do. It is difficult to pass up on free money. But, it is also a hassle and a temptation to keep up with making sure it's paid off before interest charges accrue.
This may seem counter-intuitive, but I've found that if I use a credit card with a high interest rate to purchase things - for the cash back - I will pay them off faster. Since I know the interest rate is so high, I won't hesitate a moment in paying it off because I WON'T pay that high interest rate for anything.
I've stopped using my cards except for online purchases. I do shop at Amazon.com fairly often, and altho I could use my bank account to pay them, I have an Amazon credit card (high interest rate) that gives me amazon points when I use it. I always pay it off quickly.
