Credit Cards – Close ‘em Shred ‘em & Forget ‘em!

by · 74 comments

Before…

DFA community wisdom says forgo the “rewards” of the credit card industry and put an end to toxic relationships with giant credit card banks.

Last week I asked all of you to help me decide a Wise Use of Paid off Credit Cards.

The overwhelming majority say “forget FICO” and chose instead to “close ‘em, shred ‘em, and forget ‘em!”

So…

I decided to take your advice…

After…

Yesterday we closed all our old big bank credit cards, and were not the least bit sad to see them go!  Here is a list of our ex-saboteurs:

  • Capital One
  • Chase (twice)
  • Citi
  • HSBC

I also closed these department store cards:

  • ABC Warehouse
  • Banana Republic

Thank you to all who participated in the poll, and especially to everyone who added to the many insightful comments (53 at the time of this writing.) You input was very carefully combed over and very much appreciated.

So why else did we close our credit card accounts?

Good question.  For whatever reason it was not a decision that came quickly or easily, rather we toiled over the decision for months.

And I’m not really sure why we toiled.  Credit card companies have never been a benefit to me, or my wife.  They have never “saved” us from economic hardship – quite the opposite actually.

In the interest of full disclosure, there was a period a few years ago where my wife was out of work and we used the cards while “in the red” at the end of each month.  However, looking back if we would have simply lowered our standard of living – like we have now – we never would have needed to use them and would have gotten by just fine – nay… better – without them.

The truth of the matter is, credit card banks make me nervous.

Their business practices blow past “questionable” and fall more accurately in the realm of “criminal.”

You don’t have to hold a doctorate in Economics to realize that fattening up the bottom line by any means defines gospel truth to credit card banks.  Arguing the moral inventory of the credit industry would be a job reserved for the corporately brainwashed – to whom I say, “WAKE UP!”

Case in point… since paying our cards off – just a few months back – we have already been hit with a newly instituted annual fee whose induction was buried on page 3 of a statement we received about our interest rate going up.  Ultimately I take responsibility for not reading the entire document (*puke*) but this type of hoodwinking is exactly what I want to avoid – and exactly why I ended up canceling our cards.

**NEWSFLASH** Attention credit card companies – Despite what you may have learned in credit card school, your customers do not enjoy getting bamboozled.

Should you close your credit card accounts?

That is up to you my friend.  If you want my advice I would say to yes, you should close them – however I will refrain from using this blanket statement since some people love to play the rewards game.  Personally… I don’t have the time or patience for it, and would MUCH prefer simply never having to deal with the toxic credit card banks ever again.

Here are some reasons for and against closing your old credit cards accounts.  I will try to remain fair to both sides here…

Nah… I will call it exactly as I see it.

Reasons you may want to leave your account open:

  • When credit cards say jump for rewards – you say how high.  Remember, to get their rewards you have to use the card in a very specific way.  And if you screw up once… BAM!  Fees high enough to wipe out months, maybe years, of built up rewards.
  • Increased FICO score – In the above poll DFA readers overwhelming advised against basing your decisions on your FICO score or, as some called it in the comments, your “I Love Debt Score.”
  • Security for emergencies – C’mon… you know what I’m going to say now right?  Don’t use credit cards for emergencies… work to build up your Emergency Fund and use that instead.  Trust me… this is the way to go!

Reasons for you to close your credit card account:

  • No more temptation to use them – You can’t spend what you don’t have.  Getting rid of your cards eliminates temptation to spend money you don’t have.
  • No more dealings with a company who lives to empty your pockets – From the time you’re of legal age the giant credit card banks are courting you with very carefully orchestrated strategies… all with the end goal of getting you into an endless cycle of interest payments to them.
  • No worrying about fees (late payment fee, over the limit fee, etc.) – No open credit card accounts = no fees.  It’s just that simple.
  • No more interest payments to others – Instead you can bank your money and pay yourself interest.  What a concept eh?
  • No more supporting an industry that feeds on the less fortunate – I mentioned the fact that you no longer have to deal with deceitful companies, but closing your accounts will also end your relationship with an industry based on predation of the less fortunate.  According to the FDIC 93% of fees are charged to 14% of credit card users.

I’m sure there are countless other reasons to terminate your relationship with your big credit card banks… but this list is more than enough to open your eyes and give you a head-start.

Will I ever use credit card rewards again?

Because I am a Personal Finance Blogger…

I may soon be testing the rewards program of my local credit union in the hopes of providing DFA readers with a positive rewards solution – because I will never endorse big bank rewards programs and I would like to be able to endorse a healthy alternative… if possible.

In that spirit I have decided to leave myself a single credit option, albeit a much healthier one.  If you must keep a credit card, the following route is probably your best bet.

After recently switching to Capital One 360 for our banking - *love it* – we decided to subsidize the liaison with a membership to our local credit union.  A few weeks prior to our close ‘em, shred ‘em, and forget ‘em decision… the credit union extended a joint, rewards credit card offer, and we accepted.  While we have no immediate intention of using this card, because it is with our local credit union (not a big bank) and because of the reason stated above, we are keeping the account open… for now.



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1 Baker

Way to own it man. I know you well enough to know you won’t regret this. It will fortify your value and embolden your mission.

Since taking this plunge, I’ve not spent one second thinking about my credit card life (outside of writing a post about it). Some things you try to get rid of and they end up sticking around, you second guess it, or don’t fully eliminate the stress involved.

THIS WAS NOT ONE OF THEM.

And I know it won’t be for you. Enjoy the piece of mind, man. Once you dump that LC loan and strengthen your E-fund, I’ll be looking for you to complete your finishing move on your one remaining!

2 Credit Card Chaser

While I am opposed to some of the reasoning behind this post and the post that you have made on your blog (“Bend Over… I’ll Show You Where You Can Stick Your ‘Rewards’”) I do really enjoy all of the thought that each of you have put into your posts.

I love the interaction and know that it took a lot of courage to go against the typically recommended responsible course of action (using cards for their rewards, only using credit cards when the money is in the bank, paying off the balance in full every month, etc.) so I will definitely say job well done to each of you for writing such great thought provoking posts!

I have made some of my concerns with this type of thinking clear in some of the other comments on the posts but I will just say that the one thing that does bother me somewhat is that it is certainly true that each person handles credit differently so for the person that has problems using credit cards responsibly or cannot manage them without a hassle then it may we well worth the hit to their FICO score to simply go without but yet for those many people who can use credit cards responsible and in fact make money from their credit cards with little effort it seems a little ridiculous to attempt to tell them to start paying 100% for things instead of the 95% – 99% they are used to paying for things with their cash back credit card.

Just a few of my thoughts and once again congrats to both of your for your great conversation stimulating posts!

3 Barbara Weatherly

Ah credit card chaser, you do realize that NO ONE except the banks are making money on credit cards, right? Does the term INTEREST ring a bell?

4 cekeys1

Way to go MattJabs! I know its scary at first, but after +3 years of having no credit cards I always wonder, “why did I use them in the first place?” Now, if I don’t have the cash, I don’t buy something. It’s a truly blissful place.

“93% of fees are charged to 14% of credit card users” Wowzers. And most of their profit is from those fees. What does that tell you about “predatory practices?” I say to them, no thank you.

5 Steve Rhode

Wow. I’ve known you for a while and we’ve been friends so don’t take this the wrong way. I could not disagree more with your decision. I understand why you are making it but it seems misguided based on emotion and rebellion rather than reality.

Like it or not your credit score plays an important place in your life. It dictates things like insurance rates, utility deposits, and risk when evaluated by others.

Using no credit at all is worse than bad credit and falling off the grid often comes back to bite people in the ass when they least expect it. Over my years of helping people I’ve seen it time and time again.

There is no reason in the world why you can’t embark on this journey in a more balanced way. My suggestion, keep the oldest two to three cards open, use them once in a while and never carry a balance.

As long as you never carry a balance you never pay interest, no late fees and you avoid all the negatives you cited while maintaining the positive benefits of responsible credit. And keeping your FICO score up and your credit polished could be argued as the most responsible thing you can do for you and your family.

Living off the credit grid might make you feel better but it isn’t going to do a damn thing to change the reality of a system that judges you in so many ways based on the FICO score.

I humbly ask you to strongly reconsider before launching on this misguided journey.

Steve

6 Matt Jabs

Thank you for this thoughtful comment Steve – I take no offense, I know your intentions are always good. You have become somewhat of a mentor to me and I really appreciate it… but sometimes you must allow your mentee some room to search out their own path. I kindly ask that you let me go this way without any reserves… this is definitely something I need to do right now. If it does come back to bite me later on, I promise to give credit where credit is due – no pun intended! ;-)

7 Mr. Not the Jet Set

“And keeping your FICO score up and your credit polished could be argued as the most responsible thing you can do for you and your family.”

This could be one of the worst things I have ever read. Saving money, building wealth, becoming debt-free, saving for college, making moral decisions and setting an example for your children…. no? nothing?

Worrying about and making financial decisions to maximize a three-digit assessment of your creditworthiness? Selling your soul to chase the dollars they wave in your face? This? This is responsible? Sorry, but no.

8 Matt Jabs

A lot of the things you mention here are the exact things we are focusing on. Great comment.

9 Credit Card Chaser

” “And keeping your FICO score up and your credit polished could be argued as the most responsible thing you can do for you and your family.”

This could be one of the worst things I have ever read. Saving money, building wealth, becoming debt-free, saving for college, making moral decisions and setting an example for your children…. no? nothing? ”

@ Mr. Not the Jet Set

I believe that the point that Steve is making is that all of the things that you mention as worthwhile goals (saving money, building wealth, becoming debt-free, saving for college, etc) are all helped TREMENDOUSLY by having a good FICO score.

I think that both Steve and I and most everyone else would agree that the things you have mentioned are worthwhile goals but the facts are that, everything else being equal, having a good FICO score will help one accomplish all of those goals faster.

Note, that I am not saying that one cannot accomplish those goals by not having a good FICO score BUT having a good FICO score definitely makes achieving those goals much much easier and less costly. IMO doing things to get and maintain a high FICO score is part of being a good steward of the money that one has.

10 Credit Card Chaser

“Like it or not your credit score plays an important place in your life. It dictates things like insurance rates, utility deposits, and risk when evaluated by others.”

I couldn’t agree more. If nothing else, keeping no annual fee credit cards around solely top boost ones credit score (and in turn pay literally tens of thousands less over the course of a lifetime in excess mortgage interest, excess insurance premiums, etc.) is well worth it.

I personally try to use my cash back credit card for almost everything that I purchase because it is my personal belief that I am NOT being a good steward of my money if I do not use the card to get the cash back.

I respect Matt’s decision but I do sometimes get confused by the people that say that “playing the rewards game is such a hassle” because unless you are one of those ultra crazy people that try and squeeze every last reward out of a card then it is pretty simple for me just to use a cash back credit card and then schedule the card to auto pay the balance in full every month from my checking account. I really don’t even know what could be simpler. To each his own though!

11 Barbara Weatherly

so change the system.
all FicO shows is that you have debt. nothing else
and then it is not that accurate.

12 Dave - LifeExcursion

That was awesome. Congrats. Sometimes life needs extreme actions to get extremely positive results.

Way to take that first step towards financial freedom

Dave
LifeExcursion & The Minimalist Path

13 Neal@wealthpilgrim.com

Matt Jabs,

I don’t want to build up your hopes too much but this post is a strong contender for the you-know-what award.

Seriously, great post. In your situation, you took the right action. I don’t think everyone should stop using the credit cards though.

We’ve been fortunate not to have any credit card debt so I love using cards – it’s my way of sticking it to the man!

Anyway, congratulation on this Matt. Nicely done!

14 Matt Jabs

Oh man… the “Pilgrim Pick of the Pack!” Yes!

15 John VonDoloski

Great article. In my mind, the test of whether you should keep card accounts open is based on individual behavior. I do play the rewards game, but I have never carried a balance on a credit card. For those who have struggled in the past with credit, I personally don’t believe the risk is worth it. Some people can responsibly drink others have proven they can’t and it isn’t worth the risk to their family, etc to have any alcohol around the house. I don’t have cable TV because I have proven I can waste an entire day or more watching the same Sportscenter multiple times. An old proverb says, “the surest sign of wisdom is for a man to be sensible of his own follies.”

16 Matt Jabs

Very well said Mr. VonDoloski…

Get this – we had our cable shut off about 6 months ago and were loving the extra time. Then… our 6 month deal on cable Internet ended so I had to call the cable company back up and tell them to give me another discount. They obliged but their current promotion gave us cable TV and Internet for half the price of what we were paying just for Internet. Now we have cable TV again and it has already began sucking us in. I think I’m going to purposely program only our local channels into the remote as a way to curb the temptation of free TV service.

17 BG

Steve, I disagree: the only way to change the system is to rebel against it and blog about exactly why you are boycotting the system. I am sure that some CC industry executive will read this one day. The FICO hit for closing a bunch of accounts will happen, but after a year or two his credit score will likely be higher because of this maneuver.

Matt, Good job! I agree with everything you have said, and you will not miss those credit cards (believe me). One thing I might recommend is perhaps you should suggest what the CC industry should do (if anything) that would convince you to go back to them.

Some examples that I can think of:

1) work with FICO to change the scoring formulas to not punish people for closing an account: scores should go UP not DOWN when a CC account is closed. Positive history on closed accounts should remain just like the negative history does.

2) Stop aggressive advertising on college campuses / predatory practices.

3) Work with your customers when they are in a bind: instead of the common practice of raising rates to 29% and requiring 5% payments when they are least able to afford it. This is the only industry I know of that strives to push people into bankruptcy.

4) Stop changing the terms: my 5% fixed card I had for over 7 years, suddenly changed into a variable rate of 8% over prime in a two month time-frame — that is not “fixed”. I had no negatives on my score to warrant this either: the only thing that changed financially was that I paid off a student loan.

5) Automatically insure electronics (and other stuff covered by warranties) for gold & platinum members. I do not want to fill out any extra paperwork for this to happen. Why exactly do I need to send you my receipt, when I used your company’s card for the purchase: work with merchants to MAKE THIS HAPPEN.

6) Pay me interest if my CC balance is negative, at the exact same rate you charge me interest if my CC balance is positive: a two-way street. If you want me to pay you 8% over prime for money you lend me, then I want 8% over prime for the money I lend YOU.

7) The general idea is to spend time thinking about the goal of PROVIDING VALUE to your customers, instead of spending time thinking about ways to EXTRACT MONEY from your customers.

18 Matt Jabs

Wow BG – I am going to turn your awesome points into an informational post as a sort of “Attention Credit Card Banks” – do this to win back our business. Great stuff.

19 Paul @ FiscalGeek

Sooo with you Matt, congratulations my friend and welcome to the ranks.

20 Erica Douglass

Hi Matt,

Wow! Congratulations. :)

Many “local” credit cards are actually maintained by other companies. You can check the back of the card.

As far as rewards go, the best rewards program I’ve seen (pointed out by Ramit) is the Schwab 2% cash back Visa. Schwab is big, but not one of the biggest, banks. The card is through FIA Card Services; I don’t know much about them. The 2% is auto-deposited in your Schwab account every month, where you can choose to invest it or withdraw–just like you would from an ING account.

If you want to run a business, you’ll want credit — I talked about this with Baker on the recent Get Rich Slowly podcast. You do NOT want to put yourself in place for an audit by putting your business expenses on your personal card (or worse yet, paying cash and having to keep all receipts!) Keep that in mind for the future.

-Erica

21 Matt Jabs

Actually I did catch that podcast… you had some invaluable insight.

I have a plan in place to move my saved earnings from online sources into a business checking. I then intend to use cash only – no debt for the biz.

Also, I checked the back of my debit card and it is all done through my local CU… which is good on so many levels. Thank you for bringing that up!

22 Barbara Weatherly

or use cash on the barrel head ala Dave Ramsey

23 Robert Espe

You asked if any of us have credit cards through credit unions.

My wife and I have joint cards, and we got them at a credit union, but about 8 months later, the credit union decided to sell their credit cars to Elan (a big company) to help their bottom line during the recession a year and a half ago. However, since I have been treated well since the transfer, I have kept the account. I don’t care at all if they ever change the interest rate, but if they ever added an annual fee or reduced my credit line below $5k, I’d drop them like a hot rock.

Credit is not my temptation, so it isn’t a problem, and it allows me to keep all the money I spend a month in my high-interest online account with Ally Bank (similar to ING, although I opted for the higher rate in an MMA, which limits me to 6 withdrawals a month, so no using a debit card for lots of little purchases) earning interest for an extra 30 days, at which time it pays itself, so it’s never late.

However, I am glad you are happy with your decision, I did prefer just using my old Visa check card, and only dealing with one institution. But, I am at that young, credit sensitive age where not having a score causes plenty of problems (apartments, auto insurance, even the background check at my job), so I needed a real credit card. Maybe once I’m over 25, have a house and secure score I’ll go back.

24 Mr. Not the Jet Set

Matt –

I’m stoked that you took the challenge seriously. This is no reflection on your readers, but I really did not expect to see “shred ‘em and forget ‘em” come out on top in the popular vote.

But you’re only part way there. The second part is to live without them. You can do this. Forget the garbage rewards. We’ve been doing this for years, and have actually found no ill affects on credit scores, better security on our debit cards and total control and simplicity with our spending via the envelope system.

25 Matt Jabs

Actually my wife and I have already been living without cards for almost a year now (well – she did use them once in that time frame because our Emergency Fund was not yet established.)

We’re pretty solid and happy with our simpler lifestyle and have no desire to spend unnecessarily… so things are going very well!

26 No Debt Plan

Dave Ramsey would be proud — and he wouldn’t like me too much, I think!

Good for you. As JD likes to say… “Do what works for you.”

For those vehemently denying any benefit from credit card rewards programs… I pity you. You apparently don’t know how to do one of the following:
a.) spend less than you earn
b.) live on a budget
c.) control your spending whether it be cash, debit, or credit (it is still spending if it is a debit card!)
d.) set up automatic payments

I have yet to pay a dime in fees or interest with our credit card. In return for our patronage the company has given us $1,200+ over the last 3 years in cash rewards.

Now to some of you $400 per year is nothing. A drop in the bucket… but to us, $400 is a nice little bit of cash. I’m not going to say that $400 has changed the course of our life, our savings. That would be silly.

But I’m never one to turn down free money. (Please save your fingers with the “but it isn’t free!” stuff.)

At the same time I realize my wife and I are in the definite minority. We stick to a budget when we go to the grocery store and we still swipe a credit card. A majority of the American population doesn’t have the self-discipline to do what we do. Period.

27 Matt Jabs

Sounds like you have a pretty good handle on it Kevin… nice work.

28 Mr. Not the Jet Set

Kevin -

I pity the folks that make such assumptions. The Mrs. and I (probably more so the Mrs.) have done all of those things, have been doing them for years, and do so quite well on a monthly basis.

And $400 per year is no small amount of money. The trouble is, it’s not enough for me to compromise on my morals and values – not sure any amount is. The credit card companies can’t buy me out for a few hundred bucks. They can’t flash the cash, and make all the sins and failings go away. Same goes for Wal-Mart. The fact that the store is mad-house drove me away initially, but from a moral standpoint, I can’t go back in there. We could probably save several hundred per year by shopping there. But I can’t let money drive all decisions.

For the love of money is the root of all evil.

29 Matt Jabs

BRILLIANT! I could not have said it any better, although your points very closely resemble what I said in my reply comment to Len Penzo below.

I feel the exact same way – as a matter of fact… I think a detailed post on this matter is overdue. I will be starting on this post ASAP because it is something I am very passionate about.

IT IS NOT ALL ABOUT MONEY! :-)

30 No Debt Plan

Again not trying to be offensive, but it sounds like you and Matt hate capitalism.

The credit card companies don’t pay secret agents to come to your house and hold a gun to your head, forcing you go to shopping.

It’s all about personal responsibility. People with credit card debt made the choice to use the credit card in the first place. They made the choice to apply for the credit card.

As a capitalist I feel no pity for those that willingly entered into a relationship with a credit card that they cannot handle. For those that say debit cards are so much better, I beg to differ. Look at the overdraft fees. Both are plastic, both can be “abused” by people that don’t have any self control.

So it isn’t about morals — yes, I am aware that the CC companies’ collection practices are beyond shady — it is about capitalism. Don’t want the debt collectors calling? Don’t apply for the credit card, don’t use it, and pay it off. The easiest way to not have them call you is to not give them a reason to call you.

My two cents. :)

31 Matt Jabs

Kevin: here is my stance on Personal Responsibility.

Keep in mind… we’re not addressing CC collection practices or people’s choice regarding credit here – we’re addressing whether or not using credit cards at all can be a moral issue.

True capitalism (based on Austrian economics) is a beautiful thing. I suggest you read Economics In One Lesson by Henry Hazlitt to gain a powerful perspective on what true capitalism is.

32 BG

It is a moral issue when the CC company changes the “terms of the contract” with only a 45-day notice, and they specifically are doing this now with the customers they’ve determined are most vulnerable.

Hiking interests rates to 29% and requiring 5% monthly payments is pure evil when done in this fashion. They are doing the exact opposite of the “value” that they could be providing their customers: 0% interest for 6-months, and 2% minimum monthly payments. This would actually generate customer loyalty.

Can your blame people for running away screaming when you see companies behaving in this fashion? The CC industry has proven that they are not in mutually beneficial relationships with their customers: instead they are in a very hostile relationship.

This is not “hating capitalism”, this is capitalism at it’s purest: voting with your wallet. May all companies that treat their customers badly go out of business.

33 Len Penzo

Great discussion! Hopefully this doesn’t sound too snooty because I really don’t mean it to. I understand this is just my opinion. :-)

I disagree about this being a moral issue. I’m firmly in No Debt Plan’s camp here.

There was a contract. The contract was agreed to. The fact that somebody gets themselves into a vulnerable position that the company takes advantage of is irrelevant, IMO. That is merely blame shifting. If CC company terms were always unacceptable then shame on the consumer who didn’t read the T&Cs and agreed to use the card anyway. :-)

I believe, for the most part, CC Cos. are in a hostile relationship with their customers who have got themselves in a financial bind. I also suspect most people who pay off their CCs every month have an average to above-average relationship with their CC company.

Now I’m going to get a bit provocative here by maintaining that those who have been personally responsible vis-a-vis their credit cards cannot be abused by the credit card companies because they have the financial freedom to walk away and take their business elsewhere.

Again, that’s just my opinion. :-)

34 Matt Jabs

Hey Len:

You make many solid points about personal responsibility – all of which I strongly agree with. Here is the only difference in what we seem to be saying…

You said, “The fact that somebody gets themselves into a vulnerable position that the company takes advantage of is irrelevant, IMO.”

The stance BG brings to the table holds that he does not want to do business with a company who treats anyone like this – regardless of whether it has happened to him or not (because as far as I know… BG has not had a bad experience w/CC’s) he just chooses not to do biz w/them.

Despite the things that have happened to me, I’m not bitter w/the CC companies per se – I’m upset w/myself for ever getting into debt of any kind. But I hold the same view as BG – but I recognize that the industry has no interest in moral business practices so I am choosing not to do business w/such. I would do the same with any company in any industry if they did not incorporate morality into their biz model.

35 BG

Len) What contract? The “terms” you agree to are that the CC company can change the “terms” at any time.

I am not sure that a contract that says one party (CC company) can change the terms at any time is even a legal contract at all.

Another change I want to see made before I would consider CC companies again: purchases made on a date are to be held at the terms that were in effect on the date of purchase (interest rates, payment percentages, etc). If a CC company wants to change the terms, fine, but the changes do not affect purchases made under the old terms.

What the CC industry is doing would be like a mortgage company changing your fixed-rate mortgage to a variable-rate mortgage years after the fact. This, in my mind, is both illegal and immoral.

36 Mr. Not the Jet Set

Len-

Not wanting to sound snooty either, just offering my opinion as well….

Anyone who doesn’t think that there is a moral decision here doesn’t know who they are dealing with. Just like the blissfully ignorant shoppers at Wal-Mart (I was once one of them too). While I understand that you are speaking from a standpoint of your experience (which is fine), but I know that there is much more going on.

This is an industry that is predatory. An entire industry – the only difference is the level of predatory activities. Not all of the credit card companies target people who have filed for bankruptcy, but plenty do. Not all of they prey on college kids, knowing that the vast majority have little to no financial skills or income, but a lot of the credit issuers do. Not all of them own collection agencies that knowingly break federal law on a daily basis, but I would bet that all of the majors do – with the smaller ones outsourcing to equivalent firms. Not all of them are marketing to teens and pre-teens, but few have to since Visa and MC are taking the lead on that one.

Now this may put me at risk (somehow) of sounding anti-capitalist, or anti-’merican. I have no issue with capitalism, and I also know that not all corporations or industries are this way. In fact I can think of very few that so blatantly seek to take advantage of the general public. It’s difficult to come up with other industries that create and foster such a tangled web of lies, myths, and mis-information – that works so hard to keep consumers in the dark as to exactly what they are signing up for.

So I, and others, find myself doing the most capitalist thing I can do. I cannot support their business, and I’m taking my money elsewhere. They can’t pay me enough to look the other way.

37 No Debt Plan

I can’t reply to BG’s lower post below — too many threads in the comment.

Great discussion, but I’m with Len (shocking, I know).

The fact that you agree to terms and conditions that say they can change (and then notify you) puts the ball solely in your court.

Don’t like those terms? Don’t play ball. Don’t mind those terms? Play ball and walk away if you need/want to. If you get in trouble in between agreeing to the terms and walking away… who do you have to blame? You agreed to them in the first place.

Another thing: if you are paying off the balance at the end of every statement (setup automatically) there is literally very little they could change the terms on and it have any affect on you. Interest rate? Doesn’t matter. Minimum payment? Doesn’t matter. The only thing I can think of is if they added an annual fee — at which point you drop the card.

Again I completely understand if you choose not to play ball. But if you get on the court and the other team beats you, look at who laced up your shoes before deciding the blame.

38 Matt Jabs

@Kevin: The thing is, I don’t think you have addressed what we are saying yet. You keep going back to blame. Nobody is blaming anybody for anything – we know that if someone gets into CC trouble it’s their own fault… no one is trying to debate that.

The debate is about the moral obligation not to do business with a company in which you do not agree with their business practices. That’s it. That’s the debate.

And to choose not to do business with a company because you do not agree w/how they operate is the definition of capitalism.

Not sure if this came across as offensive, but please believe I mean it w/no offense… just as what I see.

39 Barbara Weatherly

no, actually it is about greed. on both sides. Our grandparents and for some of us our parents managed to achieve the American Dream by not buying anything until they COULD ACTUALLY PAY FOR it.

40 Len Penzo

I have to disagree with you on this topic, Matt!

I have not paid a cent of interest on my credit cards since I was in college (over 20 years ago) and I have never been screwed by my credit card company.

In fact, I have made over $1500 off of my dividend rewards account over the past 5 years just for using their card. But don’t feel bad for my credit card company – they still made their profit off the merchant fees they charge. Everybody wins!

And maybe that is the secret – these companies don’t dare alienate their best customers. If you are a top-of-the-line customer, they are less likely to screw you with their changes of terms and conditions.

I do not fear credit card companies because I understand the consequences of becoming a slave to revolving debt.

The only condition is that you are diligent in paying your bills on time and take your personal finances seriously.

Matt, I know you have definitely learned the hard way over the past few years how dangerous credit cards can be. But once you are confident in your ability to manage your own personal finances and self-control, then it simply makes no sense IMO to not take advantage of the credit card rewards programs – not to mention the standard purchase protection the card companies provide their customers (that’s added peace of mind money can’t buy).

My $0.02 (after taxes)

Len

41 Matt Jabs

Good insight Len.

Do not forget to consider that many people do not want to be involved in a business relationship with companies who profit on the hardship of others. It is no different than a consumer choosing not to do business with Walmart because they do not like how the corporate beast drives local small businesses into oblivion.

There are many sides to this debate… it is not all about rewards.

As far as our self-control goes – we don’t really have an issue with this… for us it was always just a lack of planning and purpose. Now that we purpose to live debt free, we have zero trouble with spending temptations (I think many people miss this point regarding our CC debt.)

42 Four Pillars

I think you did the right thing Matt. I’m fine with my CC but if you hate your cards and aren’t going to use them, then it’s time to take out the trash.

43 Craig @ Money Help For Christians

I don’t even know my FICO score. Hmmm. I think you made a wise choice here. There are some good uses for credit cards, but they can also be quite destructive. I’ve never seen any benefits to keeping an account open so I cancel the account when I’m done with it. But, again I don’t know my FICO score so that might hurt it, but I don’t care because I don’t borrow money.

44 Barbara Weatherly

good point and when you want to make a big purchase like a car you can do it the really responsible way and pay cash for it

45 Patrick Henderson

most credit building advice recommends having three lines of credit open. Eliminating ALL cards could lower your score?

46 Matt Jabs

Since I never plan to borrow money again, a high FICO score is not important to me… and it shouldn’t be to other people either. There are so many things wrong w/the FICO scoring system (see BG’s comment above) – they cannot be accurately covered in this comment so watch DFA for a few posts soon to come out on the subject.

47 Jon

Congratulations Matt!! I would say that you made a great decision and will I can understand would disagree I really believe it’s on an individual status. If you’re debt free and living a frugal lifestyle getting a job won’t be so important to be concerned about your FICO score. And don’t borrow, you won’t have to worry about it either… :)

BTW, I bank with USAA and have their Cash Rewards debit card and they ‘reward’ me when I use the debit card as credit. I get any where from $8 – $20 a month via the rewards. It pays monthly directly into your checking account. Plus they pay a paltry 1% interest when your balance is above $1000. I know that USAA just opened up to non-military with some restrictions so be sure to read the fine print!

BTW, you get the same standard product protection when you use your debit card as a credit card.

Good luck!!

48 Jon

Correction – Sorry! USAA pays 0.1% interest on balances greater than $1000. :)

49 Jon

BTW, if you use your debit card as a credit card you get the same standard purchase protection…

50 matt @ Financial Methods

I will probably get to this point eventually, but for now I think I’ll hold on to the two cards I have (but do not use because they’re getting paid off).

Did you put them in a freakin’ blender? They are beyond mangled!

51 Matt Jabs

Ha ha, you’re the 2nd person to ask. I just ran them through a shredder, then emptied them into this pile on my kitchen counter & snapped the photo! :-)

52 Steve in W MA

@ Matt,

Congatulations on your choice! (I would would have supported your decision whichever way you decided, but this is kind of a radical step so definitely I wanted to congratulate you!)

@ BG

as to the cc company being able to change the terms, it’s not really true. Everyone has the opportunity under law to refuse new credit card terms by sending a letter to the credit card company saying they will not accept the new terms.

My understanding is that the credit card company will then close the account and payments will continue to be due on the outstanding balance on the same terms that existed before the closing of the account. In other words, you don’t need to come up with a lump sum to pay it off, which is kind of what they scare you with when they say you have to “pay it off”.

this is what Chase did to a lot of customers last fall (fall of ’08). they sent a letter changing the terms and a lot of people got scared and paid off their cards in full (me) or just sucked it up and ate the new terms. But some who knew their rights rejected Chase’s ploy/offer (it really was a ploy, I don’t want to get into the details why though) and Chase closed their accounts. And those people just had to keep paying monthly as per the original terms of the credit card agreement, keeping any promotional offers that they were under and everything else.

Anyone taking this route to avoid adverse changes in terms should verify this information that I have given before acting. But I’m pretty certain that’s the deal by law.

As to the issue of credit card companies being predatory or unethical, I think that some of their practices can be, because people always have the capacity to be unethical or predatory. However keep in mind that offering the option of credit to people *can* be a positive contribution to peoples’ lives and can also be viewed as ethical and supportive behavior. It isn’t completely cut and dry, and the good or bad effects have to be judged in each case IMO. I believe the vast majority would benefit and do well to learn to use a cash system and learn to save in their teens and early adulthood (20s) before incorporating unsecured credit in their lives.

53 Matt Jabs

@BG: Your comment is the perfect example of the less than moral behavior these companies employ to bully their “customers.” Now that I think about it… it reminds me of a bunch of mobsters bullying their neighborhood pay-boys.

54 BG

Steve: Every purchase is a “contract” I have with the CC company — I even sign the contract (receipt) for every purchase. The CC company pays for the goods at the register, and I agree to pay the CC company back at whatever the terms of my CC card is _at_the_time_of_purchase_.

How would you like it if you buy a bunch of furniture, and then a year later the furniture company shows up and says they want more money for the couch you bought a year ago?!? How is this any different from what CC companies are doing?

Any way you slice it, they are changing the terms for purchases that are potentially years old. This should never be allowed. If they want to change the terms, then it should only affect purchases made _after_ the terms are changed.

55 Steve in W MA

BG, I hear what you are saying. However, it is different in that they have reserved the legal right to change their ongoing terms with you in an agreement you already signed with them, whereas the furniture company has not reserved that right. It may not seem fair, which is why I sense you find it to be an outrage, but viewed from another standpoint it is something everyone agrees upon when accepting a credit card account. Also, given that the credit they extend is unsecured credit, they do need a way to adjust for risk and changing APRs and minimum payment requirements is something that allows the extension of unsecured credit in the first place.

Everything else in my post still stands. Regardless of the credit card company’s existing rights to change ongoing terms, you are not required to accept those terms and are not in any way trapped into accepting them. Anyone who wants out of the game can refuse changes in terms, and they will close the account and you may then pay according to the existing terms and schedules. Most people don’t choose to do this because they are afraid of losing their credit line, but it is an option, and certainly for anyone on this board it is an excellent option.

As to your last point, that they should only be allowed to change terms on new, not existing, purchases or charges, I believe the new law makes that change, amongst others. One important change in the new law is that starting in February 2010 the c.c. companies are required to apply payments to the highest interest rate purchases on the account first, rather than what they currently do which is apply them to the low interest rate purchases and let the high interest ones rack up interest charges.

56 BG

Sad to hear that it is taking an act of Congress to cleanup this industry, but glad to hear that this industry is gonna be cleaned-up because of it.

For the new law, if it is requiring that CC companies to not be able to change the terms for old purchases, then I disagree with the “highest-interest”-first part of the new law:

If I have an old purchase $10,000 @ 5% (under old terms), and a new purchase $10,000 @ 10% (under new terms), then my minimum 5% payment should be applied as $500 to each item (minus interest for each item), not all $1,000 to the 10% item.

Each item on the bill should be calculated in complete isolation from the others — each item on the bill is a different “contract” that requires minimum payments, and interest charges (I’m defending the CC-industry in this regard). Perhaps the new bill is going a little too far…

57 Barbara Weatherly

remember these are the companies that took OUR tax money because they were too big to fail.

58 CathyG

No Debt Plan -

What do you see in the behavior of the mega-banks that remotely resembles capitalism? I’ve seen our system described as an oligarchy which makes sense to me, or a kleptocracy which works, too. But what we have today is in no sense true capitalism.

We call it Corporatism when corporations control the government, not vice versa. Vice versa is called Socialism.

59 Barbara Weatherly

very good point. No debt plan confuses big corporations with capitalism, They are not the same.

60 Fred

Matt,
I am maybe one of my CC worst customers. I charge up anywhere from $1k to $2k each month. While I’m not really playing the rewards game, I do make a few hundred dollars each year never the less. I pay off each bill when it is due. No interest, late fees, etc. ever. The best part is I am actually deferring payment of my purchase for up two months. All on their “dime”. I don’t make any purchases that I don’t already have the funds for. I have my emergency fund set up so, if I get in to a jam I can fall back on that.

For me it is a tool that I use to do my daily business.

Fred

61 Matt Jabs

I understand this fully and congratulate you on your discipline and your ability to wisely manage your credit cards.

My next post will teach readers how taking advantage of credit card rewards actually costs them money! Stay tuned, I hope to post it tomorrow.

62 Financial Samurai

Wow, good job! Did you really have SEVEN credit cards though?? How does that fit in the wallet, or do you alternate?

I have one personal CC, and I love it. 1% cash back to pay down principal, and an easy way to keep track of my finances.

Hope to see you at FS one day!

63 RainyDaySaver

Wow. I can only hope to have the same cojones to do the same, once we pay off what’s left of my husband’s CC debt. Personally, I would keep one major CC open and leave it home, in reserve, for an absolute emergency (a new couch doesn’t count!). I don’t have any problem with using CCs, so one wouldn’t bother me.

64 Matt Jabs

NO! The credit card should not be for emergencies! Our Emergency Funds should be for emergencies. We all need to change the way we have been taught to think by the corporate advertising monster… and I’m the first to admit my own past guilt! :-)

65 RainyDaySaver

I wasn’t clear enough, haha. I meant “emergency” in the sense of a financial catastrophe, such as if the emergency fund (which we have) was depleted. Absolutely joking about using it for a couch. I sit corrected!

66 Matt Jabs

Cool… as long as you’re not sitting on a new couch! ;-)

67 Kim_Mango

This year I was a charged a fee from a bank on my business credit card for not using it enough each month! And, then, without notice they closed the account. Jerks.

Recently, I have been using a prepaid MasterCard or my checking debit card in place of my normal credit card. Notice, I only have one credit card. I have no debt but sometimes you just need the convenience of a credit card when making certain kinds of purchases.

All in all I have three cards. My rewards credit card which is paid off each month, my checking debt card, and my Mango card. I may someday have the nerve to drop the credit card altoghether but I’m not quite ready to make that leap just yet.

68 Kim_Mango

Hey for full disclosure purposes, I forgot to mention in my above post that I do some freelance writing for Mango Money which is why I use their card specifically.

Even if I weren’t writing for them, I like the idea of a prepaid debit card in general because it offers the safety and convenience of not carrying cash. And, when the money is used up on the account, it won’t go into overdraft mode and knock me with skyrocketing non-sufficient funds charges. Instead, the card gets rejected. I’m not embarrassed about it though, I say, “oh, guess the money is gone.” Seriously it’s not like the cashier doesn’t have similar problems!

69 Blaine

Kim – a research group recently did a study and found that many customers switching from a bank to prepaid debit card saved a great deal of money annually. This is mostly because of no overdraft fees with the card.

70 James

I don’t think most of you see what is really going on here. Credit cards are only a part of a much bigger problem. The giant banks are using the credit rating system to enslave us. I know this from personal experience, if you save your money, hold on to your vehicle as long as you can, don’t own credit cards, take out loans, use your own cash to pay for everything the system really comes down on you. It don’t matter if you pay your bills on time.

I get offered credit cards all the time and people are always on me about never having one, i am hoping that i will never need one but i’m afraid in about another 10 to 15 years from now even people like me won’t have a choice, especially with cash being slowly eliminated from our society. You pretty much have a gun to your head to pay interest on everything you buy rather than just using your own money to just pay the actual price of anything you purchase.

Many people will say,”well if you don’t like the credit system just use cash instead of whining about the system”. Thats the problem! As every year passes it is becoming harder and harder to do that with the systematic elimination of cash combined with the credit rating system. How is this freedom? Don’t people have the right to purchase goods without paying some greedy banks, lenders and credit card companies some form of interest payments without being penalized for it? This is using capitalism to turn this country into a corporate communist state where our country is being sold out to the big world banks. Study the constitution, there is a reason it says what it does say about money.

71 James

Just to mention a few things, i am 36 and never owned a credit card,(not because i can’t get one but because i chosen not to). I only ever had 4 vehicles my whole life because i hold on to them and when something breaks down with them i either repair them myself of take them to a garage to get repaired (it is WAY cheaper to hold on to vehicles longer). I took loans out for 3 of these 4 vehicles, and payed them all off early, i was never late with a payment but i can’t get any loans for a vehicle without a co-signer and monstrous interest rates. Now i will use cash to buy used vehicles for now on.

I keep extra money in my savings account for emergencies, no emergency credit cards for this guy. The entire credit system is not about responsible people who pay the few loans they took out, or paying loans or your bills on time (i know many people who were late with their bills and are very irresponsible but their credit rating is higher than mine), but a system that is about punishing people for not paying greedy lenders and credit card companies their large profits through interest payments.

You have to choose between having money saved and not being in debt which of course will mean a low credit score or between always being in debt and oweing some form of interest payment to someone (credit cards, loans,etc) which of course will boost your credit score.

72 Matt Jabs

Thanks James. I’m not so sure people don’t see what is going on. The bible prophesies of a cashless society… so why would it not come to pass? Rather than complain or dwell on it, we need to focus on obeying God and living righteously. Cheers!

73 debtbuster

The way you say that makes so much sense. It probably is better to just go without the credit cards because for my family using credit cards for emergencies would probably be buying that pair of shoes which is finally on sale. But I agree the idea of getting rid of them is more painful than it should be!

“close ‘em, shred ‘em, and forget ‘em!”

74 Card Deals

Great post. I like very much and appreciate it.

Card Deals

*****************

Alyssa

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