Budgeting Tips to Get out of Debt and Build Wealth

No doubt about it, closing your credit card accounts can be a difficult and emotional step.  It’s also very counter-cultural, and if people hear that you are doing it, there may be backlash.  I think deep down inside everyone feels a little guilty about buying things on credit, but if everyone else is doing it then it must be okay.  So if you show up one day feeling light on your feet declaring that you just cut up your Visa card, they may feel like you are attacking their security blanket of thinking “it’s okay to buy on credit because of everyone else is doing it.”  They may say things like, “aren’t you afraid it will hurt your credit score?”  and “what if you have an emergency and need the credit?” or “why would you want to give up the fraud protection a credit card gives you?”

First, your credit score is not going to get any worse than it is after closing a credit card.  It will probably improve because you are paying off your balance and not adding new charges.  Having less available revolving credit is actually a good thing when applying for a mortgage.  Then they know you aren’t likely to go get yourself over-extended and you’ll be able to make the payment you qualified for.

Secondly, going into debt in the case of emergency just makes things worse.  If you don’t have the credit available, you’ll have to find some other way to deal with the emergency.  No hospital can deny you emergency treatment, and if it’s something like your car breaking down, you may have to hoof it or get another mode of transportation (i.e. two wheels) for a bit.  Ideally, you have got an emergency fund of $1000-$2000 in place to deal with those situations.  You don’t need that few hundred dollars that you have left available on a credit card (as a familiar and close-to-home example).

Technically speaking, the accounts won’t actually be closed until they are paid off.  But you can close them to new purchases.  When you call to close your account, you may find that they offer to negotiate your interest rate.  If this happens, then go with it.  Let them lower your interest rate and agree to keep the card open (but in your mind be thinking, just for a couple more weeks).  It is a little bit better to have that lowered interest rate when you’re paying off the credit card.

As for the protections and benefits of a credit card, you can get the same with a debit card, but a debit card works with the money you have, not money you have to go into debt for.   The biggest fraud is the lie that credit cards will take care of you; they are the worst at robbing you blind with interest charges and fees.  Once you wake up to this reality, you will just be sick at how much you have let them take from you and your family.

So be brave, you can do it!  Close your accounts and cut up the cards.  Live on a budget and start that debt snowball, and you will be just fine.

Posted By: Becoming Debt Free - Paying Debts, Credit Card Companies by Darcy