To escape from crummy cards, you need a plan


Credit Smart
Credit Smart columnist Susan C. Keating
Susan C. Keating is the president and chief executive officer of the National Foundation for Credit Counseling. Prior to joining the NFCC, Keating spent 29 years in financial services. She was the highest ranking female CEO of a U.S. bank holding company, serving as president and chief executive of Allfirst Financial Inc., the largest U.S. holding of AIB Group. She currently serves on Bank of America's National Consumer Advisory Council and is a board member of the Council on Accreditation. Keating also participates in the Financial Regulation Reform Collaborative, a nonpartisan group committed to finding solutions for reforming financial services regulation.

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Question Dear Credit Smart,
I am about to be in a position where I can pay off two of my credit cards. I have one with a 36 percent interest rate and my newest card set to pay off. But my 36 percent interest rate card also has a monthly fee, so I will continue to pay it even if I don't have a balance. I also want to close my accounts after I pay them off. I know me and I will use them if I have an open balance. But the problem is, my 36 percent interest rate is also my oldest card. Should I just pay off my two newer cards and close them? Will that hurt my credit as much as closing my oldest card? Thanks for your help! – Michael


Dear Michael,
It’s great that you have the ability to pay off a good portion of your debt now. It’s also encouraging to hear that you know yourself well enough to know that having credit available to you is not necessarily a good thing.

What I have an issue with is your decision to keep a card that not only charges you an exorbitant interest rate (36 percent!) but, to add insult to injury, also charges you an annual fee. Oldest card or not, I would strongly suggest that this is the card you should not only pay off, but close and sever ties with immediately.

You are correct that your credit score looks at the age of your accounts and having older accounts is generally a good thing. But when you weigh the costs, I would say that it’s just not worth it. The only way you might consider keeping it is if you can convince your creditor to lower the rate and either eliminate or lower the annual fee. Because you are a long-time customer, it is probably worth a phone call to ask for a lower credit card rate. You will need to speak with a supervisor and make it clear that you will be closing the account unless you can get some concession from them. They may not work with you and if they don’t, you need to follow through and close the account.

What you can do to bolster your score if you close this account is to use the remaining cards in a responsible manner. I know you are concerned about having open credit and the temptation to use it, but I hope you will consider this option. Here is what I would suggest you do. Pay off that 36 percent card and be done with it and then pay off the card with the next highest interest rate. Then you need to concentrate on paying off that third card as soon as you can.

Depending on the rate you have for the second card, you might want to leave that one open. Closing multiple accounts will decrease your available credit, which is another factor in credit scoring. Until you have paid off that third card, you can tell yourself that both of those cards are closed. Take it out of your wallet for now if that will help. Don’t add any more to the third card until it is paid off as well.

Once you are out from under your credit card debt, use your cards for everyday purchases that you would normally pay for in cash. The trick here is to put that money aside so that when the bill comes you are able to pay it in full when it is due. This is a responsible use of credit that will both keep your accounts (and available credit) open and show consistent on-time payments, which will help both your credit score and your overall financial health.

Remember to always use your credit smarts!

See related: How average account age affects your credit score, FICO's 5 factors: the components of a credit score

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Published: September 10, 2016

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Updated: 10-27-2016

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