Title: A problem called ‘Credit Card Debt‘

Credit cards are no more a luxury, they are almost a necessity. So, you would imagine a lot of people going for credit cards. In fact, a lot of people posses more than one credit cards. So, the credit card industry is growing by leaps and bounds. However, the credit card industry and credit card holders are posed with a big problem called ‘Credit Card Debt’. In order to understand what ‘credit card debt’ actually means, we need to understand the workflow associated with the use of credit cards as such.

Credit cards, as the name suggests, are cards on which you can get credit i.e. make borrowings (your credit card debt). Your credit card is a representative of the credit account that you hold with the credit card supplier. Whatever payments you make using your credit card are actually your borrowings that contribute towards your credit card debt. Your total credit card debt is the total amount you owe credit card supplier. You must settle your credit card debt on a monthly basis. So, you receive a monthly statement or your credit card bill which shows your total credit card debt. You must pay off your credit card debt by the payment due date failing which you will incur late fee and interest charges. However, you have the option of making a partial (minimum) payment too, in which case you don’t incur late fee but just the interest charges on your credit card debt. If you don’t pay off your credit card debt in full, the interest charges too get added to it. So your credit card debt keeps on increasing, more so because the interest rates on credit card debt are generally higher than the interest rates on other kind of loans/borrowings. Further, the interest charges add on to your credit card debt each month to form the new balance or the new credit card debt amount. If you continue making partial payments (or no payments) the interest charges are calculated afresh on the new credit card debt. So you end up paying interest on the last month’s interest too. Thus your credit card debt accumulates rapidly and soon you find that what was once a relatively small credit card debt has ballooned into a big amount which you find almost impossible to pay. Moreover, if you don’t still control your spending habits, your credit card debt rises even faster. This is how the vicious circle of credit card debt works.

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How To Deal With Old Credit Card Accounts

 

So, you’ve been rummaging through your belongings and found a credit card that you signed up for in college. That pizza that they gave you for signing up was pretty good, but it is long gone. Now, your stuck with this card and wondering if you should just cut it up and cancel it or keep it around.

It may not seem like a big decision, but how you handle this and other old credit card accounts can impact your credit score. It may seem foolish, but canceling that account can actually hurt your score. Let’s take a look at how to properly handle old credit card accounts.

View Your Credit Report

You are entitled to a free credit report each year. Visit annualcreditreport.com to do so, as this is the only site that is officially authorized to give free credit reports. Others may do so, but many come with strings attached.

Check the report for credit cards that you may have forgotten about and anything else that you were unaware of. For example, if you have 2 cards in your wallet and 8 cards on your report, you may want to address this situation.
Cancel (Some) Unused Credit Cards

If you have an unused credit card or two out there on your credit report, contact the card provider to cancel all but one of them. If you have a lot of unused cards out there, it is best to cancel them gradually. Doing so over time will help avoid negative attention from creditors.

Even if your unused cards still have a balance, you can cancel them. Ask the provider to close the account to new purchases. This will prevent the temptation to spend more money and will also prevent identity theft.

It is important to keep a few older cards active. While this may seem like nonsense, cancelling an old card may shorten your credit history and adversely affect your credit score.

Finally, after you cancel the cards, check your credit report at the usual time (for example, yearly) to confirm that they have been cancelled.
Things to Avoid

It may be tempting to just cut up your old credit cards and throw them away. However, doing so will not close the account. You should contact the provider to cancel the account.

Also, don’t ignore inaccuracies on your credit report. If you do not agree something or have no clue where that $5,000 balance on your 10 year old card came from, contact the card provider until you are satisfied with the issue. Someone could have stolen your identity or there could have been a simple mistake. Either way, it’s best to investigate it.

After you get your credit card situation cleaned up, be sure to track your card usage in the future. It is rarely a good idea to have old cards out there that you have forgotten about. An identity thief could charge a load of money in your name and leave you holding the bag. It’s best to tie up all loose ends and keep your credit card situation under control.
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