As many other have said, if you can’t trust yourself not to put extras on the card, then get rid of it. Kind of like a recovering alchoholic wouldn’t keep a stocked bar in the house. It’s just too tempting. Our normal mode is not to spend at all (other than the items above). We spend so rarely on clothing, restaurants etc that we don’t even budget for it. We all have more than enough clothing so we only buy (second hand) to replace as things wear out or the kids outgrow something. We only purchase household items to replace worn out items, and if we still need to have that item. Shopping is not a leisure activity and we don’t generally go into a store unless we have a purpose and a list. We live on ~55% of our take home and the rest covers the odd incidental, but usually I skim off the excess every week and move it to our retirement accounts or make an extra mortgage payment. I certainly don’t spend a cent extra because I use the card, but I want the rewards available for what I do spend. Also, I pay off the card WEEKLY. I know I don’t have to, but I like to monitor the transactions and move all the actual charges over to our spreadsheet to replace the estimated amounts we planned for the week.
I generally have a year planned out in advance so it’s easy to put in test numbers to see the long term impact of an extra large mortgage prepayment, or booking a vacation. I can also test the impact of a layoff simply by deleting the salary amounts for one of us and seeing how far down the line it will be come a problem. I expect to be laid off in the next couple of months and if I haven’t found a new job by then I already know that if I just stop the extra mortgage and retirement savings payments we can coast nicely on one salary for 8-9 months with no change to our lifestyle, and that’s without including unemployment benefits. Being free of consumer debt and living massively below your means sure takes the stress off in this economy.

I’ll look into this, thanks for the info BG.

But, if there is negative information on the closed account, that information will live on through your FICO score.

Keeping them “open for a few months” will not help your score if you do cancel the cards: your score WILL DROP when you close the accounts.

As someone else said earlier: FICO is an “I love debt” score. If you want a high-score you need to play their game…

I just want to comment on your point “The argument is whether I can have a good relationship with credit card banks when I completely disagree with their biz practices.”

I guess this raises a problem in terms of a commitment to helping others. Unfortunately these companies are solely in the business of making money. When you accept the benefits of using a credit card wisely, you are not recovering that interest you have wasted at an earlier time, it is not handed back from the kitty of some over-paid executive. Most likely it is the interest being paid in by someone else struggling with their finances.

Can you have a good relationship with these people? Just a point to ponder.

@Matt (Jabs): Yeah, it is pretty much a moot point since I believe that regardless of how you use the debit card (either by signing or pin code) the same fees are charged for the processing and interchange since the transactions are identical to credit cards. The thing I like most is the ease of having as many recurring bills as I can put on the card, and essentially automating my monthly expenses, thereby having fewer transactions on the bank statement since banks generally do not provide year-end summaries. In fact, banks for a lot of electronic transactions do not even provide a very detailed description on the statement (some even make it difficult to determine the merchant). I don’t really worry about the rewards, and just buy what I can afford to pay for in total each month. I figure the rewards are just another way of maximizing what my money can do for me, and even if the reward is only enough for something small, it’s still better than getting nothing and it isn’t a hassle for me, personally. I don’t judge, so whatever method suits you best I applaud the fact that you simply have found one and are taking control over your money rather than letting it control you like many people do.

We do not agree with their business model, do not like how they put local biz out of biz, and prefer supporting our local community. Since we stopped going we have been SO HAPPY about the decision. I think it may end up being the same thing with the credit card banks!

As for the rewards red-tape… we can laugh about it now, but I used to throw the letters away. They looked like junk mail! And this was with Discover. And once they’re gone, baby they’re gone!
.-= Mr. Not the Jet Set´s last blog ..Salad Bar Frugal =-.

As for FICO, I always like Dave Ramsey’s perspective on it – You shouldn’t do things to intentionally torpedo it, but making decisions in an effort to maintain or boost it usually leads you to bad places. It’s an “I love debt” score. When people look for ways to ‘game the system’ and boost their score, it always involves debt in some way. It may not be long-term debt – it may just be within the grace period, but that is debt.

In your situation, you just don’t want it to drop and adversely affect stuff like your car insurance (which is a whole other can of worms). That is reasonable. My wife canceled her cards 4 or 5 years ago, and we’ve been consumer debt-free for 3+ years. She still has a great score (around 800 if I recall correctly). We saw no ill affects. How could this be…? We pay our mortgage and pay our utility bills.

Focus on paying bills, focus on paying down debt, focus on solid money habits and behaviors. The FICO is just noise.
.-= Mr. Not the Jet Set ´s last blog ..Reusable Bags Don’t Reuse Themselves =-.

In my case, I have two credit cards. One sits in a lock box and almost never gets used (except once in a blue moon for gas, so as to keep the account active). It’s just there to raise my credit score.

The other credit card is my USAA Rewards Card. I put everything that is in my Budget on it (food, medical needs, gas), and pay off the full amount faithfully every month. In return, I get Rewards, which I then cash in every fall for Christmas Gifts for family. For example, this year, I have enough Rewards saved up for five $25 gift certificates at a variety of major retailers. That’s $125.00 FREE dollars gained just from putting the year’s necessities on the credit card. My total interest for the year was .71 cents, and that was only from a miscalculation on my part one month.

I have very little temptation to spend frivolously, so for me, it’d be silly NOT to have my rewards card, since it earns me over a hundred dollars in free cash each year just for using it.

So you have to ask yourself REALISTICALLY how disciplined you are. If you are the sort that can stick to a budget, put only the necessities on the card (Starbucks is NOT a necessity, nor are video games or books), and pay it off in full each month, then you SHOULD have a good rewards card.

But if you’re the sort who’d be easily tempted to add that latte to the card, or buy the kids ‘a little something’ each month on it, or ‘that nice pair of shoes on sale’ for yourself, then it’d probably be better that you shred/freeze the cards, and just keep the accounts open for FICO purposes, but not use them.

I haven’t really felt tempted to use a CC frivolously since my college days.

Yeah, like I said above, I’m not super worried about FICO… I just don’t want to close the paid off accounts if keeping them open for a few months would increase my score.

1. The spending journal – this is a MUST if people want to successfully keep a budget. It is the foundational building block that most people do not use… and therefore fail to keep a working budget for any length of time.

2. Simplicity – I love keeping things as simple as possible, especially in this tech laden society we live in. A lot of the time nothing beats good ole pen & paper!

Cheers