The importance of cancelling your old credit card accounts : Credit Card Guide

The importance of cancelling your old credit card accounts

Credit cards are hugely useful financial tools on which many of us have become reliant over the years.

When used and repaid sensibly a credit card can offer increased convenience, flexibility, security, and ease. However, many consumers find that they get carried away with credit cards, and tend to make impulse purchases simply because they don’t need to have the cash upfront. This can quickly lead to spiralling debt, and many people then find that they can only afford to make the minimum repayment on the card each month, which means that you could be in debt for decades, even with a relatively modest balance, and you could find yourself paying a fortune in interest.

If you are able to control your credit card spending, and are able to avoid paying too much interest by either selecting the most appropriate card (such as a 0% purchase card) or by repaying the balance in full each month, then you will find that the credit card is indeed a very useful facility.

However, for the many people that find themselves running into trouble because of their credit card spending it is important to look at an effective solution before the credit card debt gets out of hand. Credit cards have been branded one of the major contributors to the growing debt mountain in the UK, and many of those that fall behind with their debts and add to the bad debt levels in the UK do so because of their uncontrollable credit card spending.

One effective solution to break the credit card debt cycle is to take out a consolidation loan and pay off all of your credit cards with the loan. You will then be left with just one lower interest loan to repay, and you can enjoy fixed monthly repayments so you won’t have to worry about clocking up additional interest by only making a minimum repayment. You will know exactly when you loan is due to end, and most importantly you won’t be able to make impulse purchases once you have paid off your credit card and closed the account, which means that your debt won’t continue to spiral out of control.

An alternative for those with willpower is to use a 0% balance transfer card, and transfer existing credit card debt onto this card. However, you will need to be disciplined and ensure that you make more than the minimum repayment so that the balance will be cleared within the interest free period. You must also make sure that you do not spend on the card, as not only will this add to your debt, but it will also result in your purchase balance getting trapped behind the transferred balance, where is will be left to accrue costly interest charges.

Once you have paid off your expensive, high interest credit cards it is important that you do not just tear up your cards and leave it at that. Ordering a new card is quick and easy these days, and many people that do this end up reordering their cards when things get tough, putting them firmly back to square one in next to no time.

Instead, you should contact the credit card company and cancel the account altogether. This will enable you to avoid the temptation of reordering, will reduce the chances of you becoming a victim of credit card fraud, and will ensure that you are not charged by some credit card companies that apply charges to those with open accounts who do not actually use the account.

Tom Smith
6th December 2007

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