Why You Should Cut Up Your Credit Cards Now

Posted: 20 Feb 2008 | Categories: Credit

Today’s modern society is built on a dependence upon plastic. Not the plastic associated with cosmetic surgery, but the kind of plastic you keep in your purse. The kind of plastic you never leave home without. It’s a wonder how people paid for goods and services before credit cards were invented! Along with the convenience that credit cards have provided comes a slippery slope to uncontrollable debt. If this sounds all too familiar to you then you should seriously consider cutting up those cards.

Most people would balk at the idea of pay near 30 percent interest on a loan and yet there are plenty of people willing to use credit cards that charge just as much in interest. Considering you wouldn’t want such a high interest rate when borrowing to pay for your home or your car, why would you on your credit card purchases? Then there are some credit card companies that offer a low introductory rate only to raise their rates to such dizzying heights after a fixed term or after your first default. When you’re considering any such offer, it literally pays to scrutinise the small print and shop around for the best deal. Offering credit is a great money maker for lenders so there are always good deals to be had as they’ll want to attract your business.

Credit cards aren’t all bad especially if you’re trying to establish some sort of credit history. Almost everything you borrow on credit is recorded against your credit history. An established credit history can be very valuable because it shows potential lenders whether you’re a risk or not. When it comes to borrowing large sums, buying a house for example, a good credit history is essential if you want to secure the lowest possible rate of interest as higher risk loan applicants attract higher interest rates. Using credit cards to build up a credit history can be very beneficial as long as you stay on top of your spending and never miss a payment.

When you’re borrowing against a credit card, it’s especially important that you don’t stretch your finances to the point where you can’t afford to pay off your balance without incurring a large interest charge. A relatively small debit balance left for a few months can quickly grow into a significant amount of money.

When you’re spending with a credit card, be aware that the convenience factor can mask some of the triggers that help your brain register a financial transaction. For example, when buying goods for cash, you get to experience a real sense of loss (of the money) whilst experiencing the receiving of something (the goods). When you buy intangible goods or services you lose part of the buying experience. When you make your purchases with a credit card then you have even less triggers for your brain to register. This can make for very easy, guilt-free spending which is not a good thing when you’re trying to get out of debt.

Although we talk about cutting up your credit cards, it’s not absolutely necessary to do. As we’ve seen, there are some benefits to be had from having one and they can be genuinely useful in an emergency situation. You just need to be disciplined enough to only use it when absolutely necessary and then clear the balance as soon as possible.

Of course, that doesn’t mean you should keep all of your credit cards just in case the unexpected happens. The fewer active cards you have, the less credit limit you’ll have available to spend. Your plan should be to decide which credit cards to keep and then clear the balances from the other cards as quickly as possible.

When you’re going through the process of cancelling your credit card, don’t allow the lenders efforts to keep you onboard change your mind. Remember why you’re closing your account, all of the sacrifices you’ve had to make along the way and the financial mess you could end up in.

Once you’ve done away with your excess cards and have cleared your debt, start saving before you start spending again and only buy what you can afford at the time. If you don’t have enough money then wait until you do. Either what you want will still be available or you would have gone off the idea altogether meaning you’ve saved money. Discipline really is the key to keeping clear of debt once and for all.

Use credit cards wisely with tips on managing debt at All Financial Matters. Free up your valuable time by letting Valleyfield Accounting Services take care of your accounts - Accountants in Liverpool.

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Article Author :Edward_Singleton