Should You Cut Up Your Credit Cards?
You can watch my full YouTube video on this topic here!
Credit cards can make it easy to run up a lot of debt, fast. And since credit cards have one of the highest interest rates of any loan you’ll ever take out (currently averaging 24% APR), this means lots of financial stress for you while you pay off your cards.
Some financial experts will tell you to cut up your credit cards and switch to using debt cards or even cash instead. But is this the right answer? You know what’s best for you, but here are 3 reasons to keep your credit cards around:
1. Even if you’re not using them, keeping your credit cards open and active builds your credit history over time. This means a higher credit score for you, which in turn gets you lower interest rates next time you need to take out a car loan, mortgage, etc. Just store them somewhere secure, and check your accounts online frequently to make sure nothing’s still billing to your cards, such as magazine subscriptions and gym memberships. Watch my video about improving your credit score here, if yours needs some work!
2. Credit cards can provide a financial safety net for big emergency expenses, when used responsibly. We’ve all had those times when an unexpected bill shows up in the mail, or you have to take your pet to the emergency vet and end up with steep fees to pay. Even if you have a fully-stocked emergency savings fund of 3-6 months of essential living expenses, it can still be nice to have the option of putting these surprise bills on your credit card temporarily, and then paying them off as soon as you’re able to. I have an entire playlist on YouTube where you can learn more about using credit wisely!
3. Credit cards offer rewards points and can make you money each month, provided you routinely pay your balances off. The key here is building the habit of logging into your accounts several times each week and paying off any charges. If you can be this disciplined with credit card use, you can make those rewards points work for you. If you struggle with running balances each month, however, odds are good that the credit card company will be making money off of you. Don’t use a credit card just because they offer rewards points: you have to be really good at keeping all balances paid for this to work in your favor!
Long story short, I don’t recommend that you cut up your credit cards. If you struggle with running balances up each month, just put them somewhere safe, keep tabs on any recurring charges so you keep the balances at zero, and switch your purchases to debit cards for awhile. You can always think of your credit cards as a financial safety net, which saves you the trouble of having to take out a loan in an emergency.