Should You Cut Up Your Credit Cards?

I am not 100% against all forms of debt…for two reasons.

When in Doubt, Kick It Out!

I believe that most of the “all or nothing” rules out there are meant for novices and newcomers. That, and they can be helpful for folks who just don’t have great self-discipline and are self-aware enough to know that they should probably just stay away from a thing altogether.

An example that comes to mind is in the game of soccer. Defenders are taught at a very young age, “When in doubt, kick it out!” This helps save teams from costly mistakes made by defenders who are trying to make decisions under pressure while standing near the goal they are defending.

This guy had no business dabbling in debt. He should have just paid cash:

Later on in life, defenders develop better ball control, and even perfect some fancy skill moves that can make the opposing player look downright silly. Check out the next 10-15 seconds of this defender combining his experience with solid decision making. Even if he were to make a mistake, he’s got help (other defenders surrounding him) so he’s not crazy for not just immediately clearing the ball:

Once you have established sound controls over a specific area of life, I believe you can make the judgment call to take on some debt in order to accomplish a goal that would have otherwise been impossible without an unusual amount of capital. It also doesn’t hurt to have a backup plan in the form of a decent amount of cash in the bank, or healthy, monthly cash flow.

There’s a Difference

There are two different types of debt: installment credit and revolving credit, and one of them (installment credit) is designed to be more permanent in nature than the other.

While there are people who advise completely against having credit cards, I sort of view this as similar to saying that you should avoid alcohol 100% of the time. In fact, I think having a drink here and there can be an enjoyable experience, if done responsibly. With credit cards, as long as you are either (1) paying the balance off at the end of every month (many people do this) or (2) making a conscious decision to charge something and enacting a plan to pay the balance in a reasonable amount of time (AND understanding the implications of ensuing credit card interest), you are doing fine.

What About Me?

​Personally, I do not carry any installment debt, and I haven’t since the summer of 2014 when I paid off my house. And because I have done a good job of budgeting, saving, and planning for expenses (and emergencies), I haven’t needed to borrow money. I do have one credit card (with an $8,000 limit), and I use it to buy all of my gas and super large expenses. I don’t think I have any strategic reason for this, other than convenience and maybe the rewards points (which aren’t that fantastic, but it adds up to a few hundred bucks here and there).

So if someone asks me whether or not they should cut up their credit cards, my answer would depend on (1) whether or not you are a newbie, and (2) what your track record has been with managing your debt.

What is your view on different types of debt, and how do you apply the principals I’ve discussed in this post? I’d love to hear about any challenges or questions you have.

2 Replies to “Should You Cut Up Your Credit Cards?”

  1. Hey Chris,

    This is something I have been thinking about because I have one credit card I am considering cutting up.

    One card is a joint card between my wife and I with a $30,000 limit. It gets paid off every two weeks and there’s generally never more than a $1-$2k on it.

    The other card is a personal card just for me which also has a $30,000 limit on it. However, I never use it.

    One reason I never had the heart to cut it up and get rid of it is because I was bankrupt at one point in my life and it’s a silly pride thing.

    Second reason is I was told by the bank it will damage my credit rating temporarily when I get rid of it . My score is over 800 now and don’t have the heart to let it drop even temporarily.

    Your advice? Get rid of it?

    1. Brent, I hear ya. There’s something nice about being able to do or qualify for something that few others can. Kind of a pat on the back, which you deserve, I’d say. Personally, I did close two of my oldest credit cards a couple years ago because I wasn’t using them. In truth, the zero balance was actually negatively affecting my score. Seems ironic, except that’s what credit score is all about: “how responsibly you borrow money”. Turns out, if you don’t use it, you’re not borrowing, so the card isn’t doing a ton of good, score-wise (except contributing to your average account age). I seem to remember my score dropping a few points, but it wasn’t significant, and it got lost in the typical fluctuations (+/- 50pts) I see throughout the year. My advice: Close the account if you don’t use the card. If for no other reason than to shrink your attack surface, from an identity theft perspective. Your score will be fine!

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