Should You Cut Up Your Credit Cards?

Cut Up Your Credit Cards

There are many personal finance gurus who teach that you should cut up all your credit cards, close your credit card accounts, and live entirely on a cash-only basis.

Is this a lifestyle you should adopt?

Maybe… Maybe not.

It’s a personal decision for each individual, and it’s important to consider both the pros and cons of credit cards before making a decision.

Reasons to Eliminate Credit Cards from Your Life

There are several valid reasons to consider cutting up your credit cards and closing your accounts. They are definitely worth considering.

You’ll Spend Less – One of the main reasons cited for eliminating credit cards is the idea that many spend more when they have easy access to credit. If you have to use cash instead of swiping a piece of plastic when you buy something, this forces you to think a little more carefully about whether you really need to make the purchase.

High Interest Rates – Interest rates for credit cards vary widely and can be as high as 36%. This makes it nearly impossible to pay down your balance if you can only make the minimum payment each month, essentially trapping you in a cycle of never-ending debt.

High Late Fees – High late fees are a real drag. Miss a payment, and you will be out $25 – $38. Ouch!

Annual Fees – Having to pay an annual fee just to keep and use a credit card has somehow never seemed right to me. After all, card companies earn a percentage of each transaction you make. Isn’t that enough? While there are many credit cards that do not have annual fees, there are still plenty that have this requirement – especially the cards with the best rewards programs.

The Fraud Factor – Who has time to deal with credit card fraud? I certainly don’t. All it takes is just one person stealing your card information and using it to make a fraudulent purchase to give you a great big headache. Credit card companies usually do cover you if your card information is stolen and used for fraudulent purchases, but it’s still a big aggravation to have to deal with it when it happens.

Reasons to Keep and Use Credit Cards

There are always two sides to every coin, and those who are in the “keep your credit cards” camp make some strong points.

They Are Convenient – The convenience of using credit cards is hard to ignore. Credit cards make buying things very easy. It means you never have to worry about not having enough cash on hand. Credit cards are now almost universally accepted just about everywhere you go. As long as you have a credit card, you’re in good shape.

They Help Build Your Credit Rating – As long as you make timely payments on your cards each month, the payments help to improve your credit rating. And having great credit these days is almost mandatory. A good credit rating is necessary to secure a home or auto loan or rent an apartment, and it’s now common for employers to run credit checks before making hiring decisions.

Automate Your Monthly Bills – With credit cards you can sign up for automated billing for many of your monthly expenses to make sure you never miss a payment. You can have many expenses automatically charged to your credit cards including your cell phone, cable TV, utilities, and others. Automated billing makes life easier.

Insurance Coverage – Many credit cards now extend insurance coverage for rental cars at no extra cost. This allows you to save money on the expensive coverage the car rental companies offer when you sign on the dotted line and drive away.

Frequent Flyer Miles – One of the best perks of many credit cards is obtaining frequent flyer miles from purchases. There are some who even make a game out of it and charge their monthly mortgage payments, car payments, utilities, and just about everything else to their cards just to get the reward points – while paying off their cards in full each month. They then use these points to enjoy free airfare on their vacations each year.

Emergency Backup Funds – It’s nice to have a backup source of funds while traveling. It can be a real bummer to be on vacation somewhere, have an emergency of some kind, and find yourself short on cash. Having a credit card or two on hand while on vacation really helps to alleviate anxiety.

Your Call

Whether you decide to keep using credit cards or do as the financial gurus recommend and cut them up is entirely up to you. It’s your call. Before you make a decision, it’s a good idea to do a personal assessment regarding your card use.

Do you tend to spend more when you use credit cards, or are you frugal regardless of the method of payment? Do you carry a balance on one or more cards from month to month, or do you pay your cards in full each month? Do you travel a lot and like having the extra assurance of having a backup source of funds in case something happens?

These are just a few things you should consider before making a decision to either keep or cut up your credit cards.

At the end of the day credit cards aren’t necessarily bad. They are just tools, after all. It’s how you use them – or abuse them – that matters.

Cyrus Vanover

Cyrus Vanover is a freelance business writer who helps marketing managers position their companies for success.Based in Virginia, he enjoys hiking the local trails, exploring new restaurants, and live theater when not writing. You can learn more about him here.

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