Should I close my credit card?

By estherbangura | Credit Score/Report

Sep 08

Should I close my credit card?

I remember when I was putting a plan together on how I was going to pay off £15,000 worth of debts. This was a combination of historic debts (which I was ignoring) credit cards, store cards and car hire purchase. At this point, I became disgusted by my debts. I was angry at myself for all the interest rates I would be paying and spending money I never had. I was also angry at creditors for lending me money when I obviously couldn’t afford to pay it back.

We speak to the experts!

My husband and I decided that we would tackle our debts aggressively, using the debt snowball method, which I shared with you a few months ago. I also decided to close my credit card. I got a lot of stick for this from friends and family who did not support my decision.

Knowing what I knew about how the banks operate, how interest rates work and how building your credit is a trap to get consumers to spend more and take on more debt, I stuck by my decision and closed it anyway.

My reasoning for closing and how I considered the pros and cons:

  1. By closing my credit card, I was aware that this would impact my credit report negatively. But I was OK with this as it was in a bad state anyway. I knew I would have time to gradually rebuild it, once I improved the way I managed my finances.
  2. At this stage, no one should be borrowing me money anyway. So having bad credit would keep creditors away from offering me credit and dragging me more into debt. At least until I took control of my finances. You will find that when you are in debt and feel stuck, lenders will still offer you money with high interest, which puts you in more debt. This is how people dig holes for themselves and can’t get out.
  3. I could only afford to pay the minimum on my credit card, so this meant with interest rates added each month, my debt was still increasing. Therefore, closing my credit card would stop the interest rates and allow me to focus on paying off my total balance.
  4. With my mobile phone, car hire purchase and outstanding store card, this was enough to build my credit as long as I paid my bills on time. So creditors could still see how I was managing other areas of my finance.

Not everyone's cup of tea!

The action I took may not be for everyone, but what’s important is that you know what your options are. When you consider the pros and cons, you can make a decision on how to move forward.

Of course, I will need credit in the future, especially if I want to buy a house . However, my goal is to be debt-free before buying my home, so I have time to build my credit. This will show creditors that I am responsible for my finances.

So  I guess my answer to your question is that you have to evaluate your individual situation and be fully aware of the pros and cons to the decision you wish to take and then move forward with what you think is best. It's also important to discuss the decision with your partner or anyone you have a financial connection with. 

Tips on how to credit building

In our blog post Credit Score Explained, I offer tips for those who want to build their credit by looking at the following :

  • Who are these creditors?
  • Factors which impact your credit rate and report.
  • Why is having a good credit score important?
  • Where people go wrong with building their credit?

And if you are building your credit find out more on how you can build your credit responsibly

Take Action today!

If you find that you are overspending and not able to stick to your budget, you may want to consider joining our next budgeting workshop.

Here's Just A Fraction Of What You Will Get When You Attend Our Master Your Budget Workshop!

  • A personalised budget
  • A success plan to help your stick to your budget
  • A workbook to take away with you with lots of useful budgeting worksheet

Plus You're Getting These Amazing Bonuses As Well As When You Join Today:

  • Access to our Budgeting Private Facebook Group for ongoing support and accountability
  • Plus after making your order today, I will throw in a Cash Only Budgeting training also known as the ‘Envelope system’ to give you an alternative way to budget with cash.As you will learn, envelope budgeting is a brilliant way for people who want to physically see what they spend on and prefer using cash.

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