People call JG Wentworth for all sorts of reasons, and one of them is to get the money out of their structured settlement or annuity payments to pay off their credit card debt. Smart credit card management is one of the key steps towards financial health and well-being – a topic we talk about often on our blog and Facebook page – and anyone trying to improve their credit card and debt management should be commended.
One topic we talk less about is what to do with your credit card when you feel like you do not want it anymore: should you cancel it, or just stop using it? While JG Wentworth cannot offer specific financial advice, we thought we’d review some key factors that should go into making the decision about whether to close a credit card account or keep it open. For starters, here are three reasons why one should close a credit card account.
1) Close the account if you are using it to buy things you cannot afford
Those little plastic rectangles are certainly tempting, aren’t they? But if you are buying too much on credit and living beyond your means, consider closing the account and avoiding the temptation to charge things altogether.
2) Close the account if it has excessively high interest rates
The second major reason to close a credit card is if the interest rates on it are too high, and a better deal can be found elsewhere. With the number of credit card companies and possible good deals available, there is no reason to be paying extra interest charges if you do not have to.
3) Close the account if you are worried about identity theft
Some people with credit cards are concerned that their personal financial information is available to too many people. Closing the card account you do not use – especially one that is not essential to your credit score (see below) – will certainly limit your exposure to identity thieves.
Now that we’ve covered some of the reasons people choose to close a credit card account, let’s turn our attention to the second, equally important category: reasons not to close an account. Here are three:
1) Do not close a credit card account if it has unpaid balances/charges on it that you have yet to pay off.
While cancelling a credit card account will, of course, stop you from using it, your credit score can be harmed if you close the account with an unpaid balance still on it. You should do your best to keep the account open, even if you throw the credit card itself away.
2) Do not close a credit card account if it is your only source of credit
If you only have one credit card, that credit is a major part of your credit score; closing the account off entirely will keep you from improving your rating. You may also have an emergency financial situation that unfolds, where a credit card on hand could prove invaluable.
3) Do not close a credit card account if you have a long and positive history with the credit card company
Finally, do not close a credit card account if you have had it for a long time and/or have a solid credit history with that particular company. Keeping it will be beneficial to your overall credit score, as a successful long-term relationship with a credit-issuing company is something that credit rating scorers highly value.
We hope this information is useful to you, and encourage you to consider reading our blogs for additional general financial advice, or to learn more about our company. You can also always call JG Wentworth directly and speak with one of our highly trained representatives at 877-227-4713.
Nothing above is meant to provide financial advice. You should meet with appropriate professionals for such services.