Canceling or Reducing a Credit Card

Cutting cards up doesn't solve the debt issue.
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Credit cards are a major source of American debt. Cards are easy to use and a good alternative to carrying cash, but they can become burdens. Many young people, already socked with student loans, fall easily into the credit card trap. When you’re drowning in debt, it's easy to think you can just get out of the water -- cancel all your cards and go strictly cash. That can be a long-term mistake, though, and such a move can damage your credit rating for when you need to buy a house or new car. You need to cancel debt, not cards.

Plan a Reduction

Reducing your credit card debt requires planning and determination. List your monthly minimum payments, both for credit cards and other bills, and compare that with your monthly income. Figure out how much more than the minimum you can pay on credit cards every month; this also will involve looking at your other spending and cutting out anything not necessary.

Double Up

Increase your payments by doubling up, paying twice the minimum. Work first on the card with the highest interest rate unless you have a card or two that you can pay off quickly, like in one month. Don't cancel the card when it's paid off. Keeping a credit card that has been paid off will improve your credit rating, even if you don't use it.

Borrow Elsewhere

Look at options to paying high credit card interest, especially if you’ve got debt on a card with 20 or 25 percent interest. Cash out a savings account, borrow against your life insurance or ask about a home equity loan or line of credit which might have a much lower interest rate. If you can convert $5,000 of debt at 20 percent interest to 5 percent interest, you can pay the debt off much faster.

Ask for Lower Interest

Ask your credit card company about lower interest rates. Call the credit card company to say you plan to cancel the card once you get it paid off; sometimes that will trigger an offer for a lower rate to keep you on the borrowing line. You'll still have a credit card but you will eliminate the balance faster if you're paying less in interest.

Cancel Properly

If you do decide to cancel cards, drop the newer ones first. Those you've had longest will help your credit rating more. If you have two cards from the same issuer, ask about consolidating them. Cancel credit cards in writing to demonstrate that you initiated the cancellation, otherwise it may hurt your credit report. Ask the issuer to give you a written confirmation saying "closed at customer's request" to prove you canceled, not the card issuer.

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