To Keep or Not to Keep – The Big Card Question

If you follow any finance gurus, you’ve probably heard many different theories on credit cards. Some say you should definitely have them. Others say you should definitely not. We’re going to give you the definitive facts – but you may not like our answers!

The Truth – it depends.

We don’t like to say yes or no, definitively about keeping a credit card or closing it, because it truly depends on the individual situation. What is best for one household may not be best for another one. Some people can manage money well, where others tend to spend it faster than they can make it. Certain temperaments are more inclined to overspend on a credit card, where others never touch it. Truly, it comes down to the individual situation. But, we do have some factors to consider, to help you make up your mind.

Your Personality

The most important thing to understand when it comes to financial literacy is your nature. What does your personality say you are more inclined towards? Are you a spender by nature? Or a conservative saver? Your personality is going to determine a lot about how you manage credit cards. As a spender, you’re probably more inclined to swipe over and over again until the card is declined. If that’s the case, you should definitely close your credit cards once you’ve paid them off. The temptation to spend money you don’t have will be that much stronger.

Your Budget

We talk about this factor constantly here at FFL, because we believe it to be the determining factor in a healthy financial life. Your budget should be considered when analyzing a credit card, specifically to determine if there is any flexibility in it. We coach to a “zero-sum” budget, meaning all your dollars should be labeled… Income minus expenses should equal to zero at the end of each month – expenses being savings, donations, spending, etc. However, there are different points in every finance journey. Early on in becoming debt free, the budget is very tight. There is no room for error or extra spending. All the extra money each month is going towards attacking your debt. This is NOT the appropriate time to have a credit card and be using it regularly. It’s counterintuitive.

Later in the journey, though, when all the consumer debt is paid off, the budget becomes a bit more flexible. You can add in savings for the future, like travel, new vehicles, etc. At this stage in the budget, it may be appropriate for a family to keep one of their credit cards active. It can be helpful when booking travel, for example. Or for fraud protection.

Consumer choice

Ultimately, it comes down to consumer choice. Credit card debt is BAD debt, there is no questioning that. It is just plain stupid to have high amounts of credit card debt. The interest rates are extremely high, and more often than not, credit cards are used to purchase excess things. If you can use a credit card wisely – not spending money you don’t have, or buying things you don’t need – then there is no problem with keeping it open. But, if you know yourself, and you know it is not something you can use wisely, then just don’t tempt fate. Close it, and use cash.