What are the Benefits of Cutting up your Credit Cards

If you have credit cards you are no longer going to use, then it is important to consider the difference between closing an account and cutting up the cards. There are benefits to cutting up credit cards. 

You can make your credit score drop drastically if you close a number of credit card accounts in a short amount of time. By closing an account, you lower the ratio of your available credit and balance due. Changes to this “credit utilization ratio” can affect your credit score. 

You can cut up the credit cards to remove the temptation of using the cards without affecting your credit score by closing the account. If you cut up your credit cards to deter spending, then make sure you don’t have other access to the account number. You may have it written down somewhere or stored in online shopping accounts.  

If your credit card has an annual fee and you are no longer going to use it, then it would be best to close the account to get rid of the annual fee. If you have several credit card and store card accounts open, it may be to your benefit to actually close some of the accounts.

Even though closing accounts can affect your credit score negatively, it can also hurt your credit score by having too much credit available to you. If you don’t plan on using all of the credit, the credit bureaus don’t know that. In their minds, you could easily go on a big shopping spree and end up owing more than you can easily pay back. 

Some people may charge more to their credit cards than they normally would in order to receive travel rewards or other rewards. If you are not able to repay the balance within a month or two, it may negate the benefits you received from the rewards. 

Another benefit of cutting up credit cards you are no longer planning on using is to reduce your chances of being a victim of identity theft. Before throwing credit cards away, make sure you cut them up correctly. Cut through the card numbers at least three times and remove the security card from the rest of the card. It is also recommended to throw the card pieces away in a number of different garbage bags to make it more difficult to be able to piece the cards together. 

Even if you cut up your credit cards, you are still responsible for repaying the balance you have charged. If you cannot pay the full balance off each month, it is important to pay as much as you can. By making the minimum payments due, you will be barely paying off the interest charges and it will end up taking you several years and a lot more money in interest charges to pay off the balance. 

If you find it difficult to cut down on spending even after cutting up your credit cards, then it may be necessary to close the accounts so you are not able to charge any further purchases.

There are benefits to cutting up a credit card instead of closing the account.