 Cut
up your cards, keep accounts open
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 Dear
Debt Adviser,
I recently got a home equity loan and paid off all of our credit
cards. My husband wants to close all the credit card accounts, but
I have read that it does not help your credit to close them all
and may, in fact, hurt it. I want to leave them open for a while
until they are all reported by the credit bureaus as paid in full
and our credit score improves.
I also read that when you go to get a car loan they look at what
available credit you have besides your debt to determine your interest
rate. Wouldn't we be better off leaving all or some of the accounts
open with no balance rather than closing them all since we will
be looking to buy another car in the next year? Or are we truly
better off closing all the accounts now? Please help us settle this.
-- Teresa
 Dear
Teresa,
I am getting really good at nonverbal communication. My cat, Big
Al, has trained me to open doors and cans and give up my space on
the couch without a single word. Sometimes when a person asks a
question, what they don't say is the most important part. In your
case, why do you have so much credit card debt that it takes a home
equity loan to pay it off? And have you stopped accumulating new
debt? These questions are buried between the lines of your letter.
I'll probably never know the answer to the first question,
but I suspect that your husband knows that the two of you or one
of you will have trouble staying away from charging up balances
on those cards once again. He might be suggesting that you close
the accounts to help save you from yourselves.
If this is the case, then by all means close the
accounts. Nothing worse than paying off credit cards with a loan
and then ending up in debt all over again, with the addition of
the home equity loan to pay off. Some people find they cannot recover
from situations such as this and end up losing their marriages over
it.
Yes, your credit score will take a hit if you close
the accounts, particularly if some of your oldest credit accounts
are these cards. And another hit when you open new accounts in the
future. However, a dinged credit score is preferable to sinking
into credit card debt again. Incidentally, your credit report will
reflect that the accounts are paid in full regardless of whether
you close them or leave them open.
As far as a future car loan, you should be able to qualify for
a competitive interest rate based on the information you have given
me and my interpretation of it. Since you state you will be getting
another car, you likely have a recent car loan that we are going
to say is in good standing. You have a new home equity loan, which
we will also say is in good standing. Plus the fact that you qualified
for the home equity loan with your outstanding credit card balances
says you had a credit history good enough to secure the loan.
An alternative to consider might be to cut up the
cards but leave the accounts open. Your credit score will not suffer,
and you won't have any cards to run up until they expire and you
get new ones in the mail. By then any charging urges should be under
control.
Good luck!
The Debt Adviser, Steve Bucci, is the president
of Money Management International Financial Education Foundation
and the author of Credit
Repair Kit for Dummies. Visit MMI
for additional debt
advice or click
here to ask a debt question.
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