Hi Jean—I caught the end of your segment on the Today show a few weeks ago where you were talking about credit cards. You said that one should never CANCEL a credit card, as it negatively affects your credit score. Instead, you said cut up the card and don’t use it. HOWEVER, what do you do in a case where the credit card company charges an annual fee? If you cancel, your credit score suffers; if you don’t, you’re stuck paying the annual fee. How do you handle that situation?
-Pat Bosha, Schnecksville, IL
You’re right-if you cancel your card; your credit score will take a hit. If you don’t, your creditor will force you to pay the annual fee for being a cardholder… and that’s something creditors are doing more frequently to mitigate the effects of the Credit Card Reform Act, whose first wave of reform took effect today. According to Synovate, a company that tracks direct mail, credit card issuers are sending fewer credit card offers to households, yet a higher number of those offers now have fees attached to them.
So which is worse, paying the annual fee or having a credit score that’s a bit lower? According to Credit.com’s John Ulzheimer, over the years, it may actually cost you more money if you keep paying the annual fee, versus cancelling the card and potentially paying a higher rate on an auto loan or a mortgage.
If you’re absolutely sure you want to cancel the card and avoid the annual fee, Ulzheimer suggests that before you close the account, replace your soon-to-be lost line of credit with another card (that doesn’t have an annual fee). Doing so will protect your More…
I joined Carlos Watson on his MSNBC show this morning to talk about the huge credit card data theft that was in the news yesterday. Watch the video below for more – and be sure to read my blog post from yesterday to find out how to protect yourself.
I have about $45,000 in credit card debt, should I payoff all my credit cards and cancel them at the same time? I’ve heard if you cancel the cards after paying them off it hurts your score.
-Nancy, Texas
Once you’re out of the red and have all your cards paid off, closing the accounts isn’t the best route to take.
If you close the accounts, there are a number of things that could potentially happen make for less than perfect financial circumstances. For one, you’ll be forced to use cash, checks or debit for all of your purchases. “They’ll lose access to the capital, have to live a cash or debit lifestyle, which is not as good as people make it out to be,” says Credit.com’s John Ulzheimer. Also, depending on how you cancel your cards, your credit score may take a hit, which will make it harder to obtain credit in the future for loans or other high ticket items.
If you have the ability to pay off the $45,000 in debt that you owe, my guess is that More…
To SheSelz…who wrote:
I also am a customer of Chase. I have never paid late in 30yr. They have just raised my monthly minimum payment from 2% per month to 5% per month, an increase of 250%. My interest rate is fixed at 3.9%. After reading the previous blogs, I’m not sure if I should call them or not! Does anyone else have other reports on how they have been treated on this type of problem? Is this problem only been occurring with Chase or other banks as well. Obviously they found the loophole that I missed in all the fine print!
Before you resort to calling — and we’ll talk about that in a moment — I want you to try to think of this as a gift rather than a punishment (and I know it feels like a punishment, with a credit card this cheap, the temptation is to use it for all expenses you have to carry.) But let’s say you have $10,000 in debt on that card. If you pay it off at 2 percent a month — at the 3.9% interest rate without charging anything else — it’ll take you 55 months. BUT if you can come up with the $500 it takes to pay the 5 percent a month, you’ll get out in 21 months. And save a boatload of interest in the process.
What if you can’t? What if it’s impossible to come up with that $500 a month? You simply don’t have the cash and you don’t have a way to get it? Then you call and you tell them that and try to negotiate something in between. Understand, they may cancel your card as a result (that’s their prerogative) or only be willing to cut the minimum so far or say no. But it’s better for your long term financial health if you can rob from the various Peters in your life to pay this particular Paul.
I’ve suggested haggling over everything from your cable bill to your cell phone plan, but what about your credit card bills? These days, credit card companies are wising up to the fact that they’re better off getting some money than no money at all, and they’re more and more willing to work with you if you’re behind on your payments. Recently, I was on Today to talk about the ins and outs of negotiating with credit card lenders. Here’s a video of the segment:
