In watching the Today Show Money 911 segment, I noticed a person ask what to do as a credit card company raised her rate to 29%. She always paid the credit card on time and had a zero balance. She seemed panicked. I was amused.
Frankly I have no respect for credit cards, so I am looking at the question for a jaded point of view. I feel that credit got the nation into this trouble (the recession) in the first place, and so I don’t feel it is worth holding onto. To me, the easy answer to having the interest rate increase is to not use the credit card so they can’t charge you the 29%. At worst, if she is going to use it, she must pay the bill in full by the due date. If you don’t carry a credit balance, your interest rate could be 100% and it shouldn’t matter.
I also think people spend too much time worrying about credit scores. While a good credit rate will help in keeping your bills low (a frugal must), using credit for anything besides a house is a frugal no-no. You might take a credit rating hit at first in eliminating credit cards from your life, if you also pay down your overall credit, your credit score will balance out. According to a bankrate.com article “canceling that card could result in a double whammy to your credit score, ‘because each card is scored individually, and then all your cards are scored together. (If) you’ve just canceled the card with a zero balance, (you’ve) lost a great individual score.’ Regardless, if you still want to cancel a card, (Evan Hendricks, author of the book “Credit Scores and Credit Reports) says, ‘make sure to pay down your other balances to keep that rate in line.’” In other words, cancel your credit card and your credit score will go down, pay off your car and it will come right back up.
I have found a better solution to credit cards. I issue my own credit. This is done by having a savings account with a debit card attached. By putting money into the savings account regularly, I am building my own line of “credit” that I can draw from for emergencies and unexpected purchased. My debit card attached to my savings account is my credit card. I am a lot more careful with it too, realizing that every time I use it I am decreasing the balance on my savings account. But I am comforted that I get to pay myself back without paying interest.
~If you liked this you should also read my blogs at the home blog, the parents blog, and the frugal blog. You can read my recent posts here.
Read:
Your Thrift Store Purchases can Affect Your Credit Cards
Families.com forum on Living Without Credit Cards