Monthly Archives: October 2009

Should I Close My Credit Card?

Posted on by  at  6:00 am
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Melissa writes in with the following question about closing credit cards:

I have an old credit card account where my charging privileges were revoked because I was having trouble making my payments.  I have since then paid off the card and it is at a zero balance.  Do I now close the account?  Would it help my credit more if I left it open?  I am trying to rebuild after years of bad credit decisions.

Deciding to close a credit card or leave it open is a tough decision. Unfortunately, it sounds like the credit card issuer beat you to the punch. Chances are they closed your account due to past due activity, which is a major blow to your credit score because it reflects that the account was closed by the issuer, rather than by you, voluntarily.

Now that the card is paid off, you might try contacting the issuer to ask if they can update the account to reflect it was closed voluntarily. They probably won’t change the account’s status, but it’s worth asking. The very fact you paid it off will help heal your credit score, as will time since the last activity (negative information should drop off your report in seven years after the last activity).

If in fact your account still reflects “Open” on your credit card, you may want to consider leaving it open to help rebuild your credit. To do so, charge something you buy every single month, and don’t have a lot of discretion in the amount spent (gasoline, or a utility bill, comes to mind). When your credit card bill arrives, pay it off promptly. This continued, responsible use of credit will help boost your credit score over time.

There is, of course, another side to this argument. Some would argue to close it and leave it closed. Don’t play with snakes. I used to feel this way myself, but since turning around my own finances over the course of a couple years, I’m now empowered by the fact that I can buy something on my credit card for purchase protections (particularly when shopping online), and simply pay it off in full later in the month. I’m in control now; not the credit card.

It sounds like you’ve made a lot of progress in your own financial turnaround, and I applaud you. Whatever you decide to do, don’t repeat those same mistakes from the past that led to problems paying your bill. The road back to responsible credit use can be a slippery slope, so if you feel yourself start to slip, put that credit card away and go back to spending cash.

The High Cost of Low Monthly Payments

Posted on by  at  6:00 am
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The following guest post is from the Engineer behind Engineer a Debt Free Life. After reading through the post, please visit his site and consider following his site’s feed for some great content.

Have you ever noticed how stores take all those nice things we can’t really afford and make it available for purchase in “affordable” monthly payments? It’s psychological marketing really, we see a new couch for nine hundred dollars and think “whoa, I can’t afford that”, but a new couch for a low buy it today price of forty dollars a month we instinctively say “I can afford forty dollars a month. I deserve this.”

For many years this was my Achilles heel, probably one of the biggest reasons why I ran us into so much debt.  For a long time we lived beyond our means, pretending we could afford a “better” life than we could afford.  It all started with needing a new car in college.  I thought I was being frugal and bought a 3 year old vehicle thinking I could easily afford the three hundred and fifty dollar a month payment (not the best idea on a part time income in college).  Soon after that we needed broadband at fifty bucks a month and on top of that all the credit card debt was running a couple hundred a month.

No worries, it’s just a few low monthly payments, right?  Well, the problem really starts to compound after a while when this psychological marketing has you thinking you can still afford more and that you deserve better.

So, fast forward another 5 years… oddly enough my income had more than doubled since finishing college yet I was poorer than before college. Why? Adding up the low monthly payments of two vehicles, furniture and all the things I thought I needed pretty much ate up my entire month’s salary.

Those “low monthly payments” weren’t so affordable anymore.  To make matters worse, all the debt… the real cost of these items… had taken a toll on my credit rating.  This not only made my interest rates go up but then my insurance rates went up too. What a nightmare, all these low monthly payments were making me dirt poor.

This psychological marketing is just that, psychological.  They advertise and hook you into thinking you need better material items than you do, that you need to keep up with the Jones’s.  They show you the price tag and then convince you that you can easily afford the low monthly payments.  The real tragedy here is what you end up paying in total with all your payments. You couldn’t afford a nine hundred dollar couch so you take the low monthly payments and end up paying two thousand for the same couch.  Doesn’t sound so affordable now, does it?

So the next time you think you need material items you can’t afford, tally up those monthly payments and ask yourself if you can afford to pay that amount. See for yourself, the next time you see one of those pay by the week rent to own furniture ads… add up the payments and see how affordable it really is.

Turns out psychological marketing is just putting lipstick on a pig.  Grandpa was right, if you can’t afford it, don’t buy it.

Weekly Roundup – Back In Action Edition

Posted on by  at  6:00 am
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It’s been a couple weeks now since my mom passed away, and I am trying to get back in the swing of things at work, at home, and here at the blog. Fortunately, I’m surrounded by many friends and loved ones at each place, and it has been a big help during this difficult time. I have not had much reading time these last few weeks, and my weekly roundups have suffered for it. My editorial comments in this edition probably won’t win any blogging awards, but hey, it’s a start.

The Frugal Roundup

101 Ways to Take a Bite Out of Your Food Budget. The title says it all – a monster list of money savers to help trim your food budget. (@The Wisdom Journal)

The Art of Letter Writing: The Sympathy Note. After recently losing my mom, we received a number of nice sympathy cards. I also appreciated the many comments here at the blog, emails, etc. It has made me more aware of the need to express sympathy for others when they are dealing with rough times. This post is an excellent how-to from someone who recently experienced a loss. (@ The Art of Manliness)

5 Ways Spending More is Actually Frugal. I liked this post because it focused on a popular topic surrounding frugality: does it make sense to spend more money up front in some cases to get a better value. (@My Dollar Plan)

The Best Times to Buy for Huge Savings on Major Purchases. An excellent run-down of the best time of year to make 14 major purchases, factoring seasonal discounts, inventory issues, etc. (@The Daily Crux)

Accidental Frugality – Can You Live on Half of Your Income? When we reach debt freedom soon, living on half my income is a big goal for our family. I think we can get pretty close, even with the mortgage, but will require a lot of discipline. (@Stop Buying Crap)

How Not To Suck At Blogging.If you are a blogger, aspire to be a blogger, or are interested in any entrepreneurial endeavor, this is a must-read post. One way “not to suck” is to follow Man vs. Debt’s lead – he’s done a phenomenal job in a short time with his blog. (@Man vs. Debt)

Best of the Rest