When closing a credit card account is not a good idea

Credit card accounts are extremely valuable in determining your financial performance. They contribute to a great extent in calculating your FICO score. Hence, you need to exercise caution before closing a credit card account.

Determining whether or not to close the account can be extremely difficult for the consumer since too many closed accounts may affect the credit score adversely. It can make prospective lenders reluctant to offer you a loan. When too many open accounts raise your debt-to-income ratio, too many closed accounts are also likely have the same effect on your score. Closed accounts reduce the volume of credit available to you and thus would push your debt-to-income ratio up.

When you start falling behind on your bills, in an impetus, closing all the CC accounts may seem the only right idea. But before you take the decision, find out below when closing a credit card account is a bad idea.

When you have only one card: Closing the account is particularly a bad idea when you have only one account. Even when the rate on the card keeps mounting, you shouldn’t consider closing it. In fact it is advised that the consumer should diversify his credit base and may maintain cards from different lenders.

For your safety, you may avoid transacting on all the cards at a time and use them alternatively.

Don’t cancel old accounts: Old accounts are given greater weight while computing credit score. Closing old accounts would shorten the length of your available credit history. Hence, you mustn’t consider closing an account that is sufficiently old.

Closing an account with balance: It is another bad credit move. Closing an account with balance may give a wrong idea to the credit bureaus. It would look like as if you have maxed out on the card. It is better to reduce the outstanding balance on the card to zero and then close it.

Credit card with balance left: If you still have available credit on a card, you might not want to close it. Not only would it cause you inconvenience but as it would reduce the amount of available credit to you, it’d be detrimental for your score.

When trying to pay off your debt, you should try to minimize the damage caused to your credit score. The above steps can help you in protecting your credit score when you fight off the debt.

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2010
02/05
CATEGORY
About DebtCC
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If you are the winner of this month’s QOM, what will you do with the $$?

Question of the Month:
Question of the Month is yet another effort by the debtcc team to enhance the community knowledge bank. It’s a monthly contest and every month a challenging question will be thrown before the members for responses. The best answer will be chosen collectively at the end of the month by the debtcc members and the admin panel of the site. The winner of this contest will receive a handsome reward of a $50.
The purpose behind this idea is to encourage the members to share their real life experiences in dealing with the financial challenges.
Though different financial issues are being discussed across the debtcc board, but it doesn’t leave much scope to the members to share their personal experiences. Here is the place where it can be done, and also that the new members can get the innovative ideas to deal with their debts along with the conventional ones.

Latest Question

Question 20: If you are the winner of this month`s QOM, what will you do with the $$?

Supposing you’re the lucky winner of this month’s QOM. What’s the best way you want to use the money? Let us know the secret desire that you want to fulfill with the money you can win from this contest.

Winner Post

Answer 1:     What would I do if I won the 50.00 in the January question of the month? Well:

A) I could go out and party at my local place. Darn, I dont drink.

B) 50.00 would sure buy me four packs of cigarettes but I have been trying so hard to stop smoking. Thats out.

C) Now using it for some of my eating places like Chilis , Texas Longhorn, Ruby Tuesdays and yes KFC sounds really great!!

But if I win , and because its winter here, I will donate to a Food Bank for the homeless.There has been to many hard times for people today that lost their jobs, homes, etc.

Even though I live week to week like a lot of others, I am very thankful for having a job and good health!!!

Answer Posted by |drop9drop

The other answers worth mentioning are:

Answer 2:     With my $50 I would buy my daughter Anna a wonderful birthday cake from the specialty bakery in town–All About The Cake. Anna will be 17 in February is nonverbal and has significant disabilities. It would have to be marble or vanilla. Shes not a fan of chocolate. Maybe raspberry? Must have lots and lots of pink roses!

Answer Posted by |rjbrown28

Answer 3:     Head for the grocery store and treat myself to a good meal. I have a very limited grocery budget and its a very rare treat to enjoy a good cut of meat or seafood. Of course I will need the trimmings to go along with the entree that I would not normally buy-asparagus if I can find it, a spinach salad mix, some ODouls (I dont drink at all because of my history of family alcoholism AND cost of beer/liquor-so this is a REAL treat too) Last a nice pie or cheesecake. Would be like the Christmas I didnt have because I couldnt afford one.

Answer Posted by |Leanne

Answer 4:     as most of you know about 5 years ago i got into some trouble and went through a settlement program. but scince then i found myself venturing back to the old credit cards for a few big purchases like my furnace blew up and my roof needed replaced.

Of course i wasnt able to save enough money in the little amount of time that i managed to be out of the program so im back to around 5,000 worth of credit card debt. kinda stinks scince i swore i would never use them again but it seems like a never ending vicious cycle with us that something big goes that we cant afford to pay for and we end up having to use the cards. lucky for me i did have some saved that went towards these purchases but now im back to no savings so i have officially made it my mission in 2010 to get everything in order and get both money saved and my 5,000 paid off.

so, what i would plan to do is the 50.00 and whatever other money i make on the net and the money i make cleaning houses is untouchable kept in my paypal account or savings (have to go into the bank to get it) were its not easily reached. and the money my husband makes all goes to bills working one down at a time. so 50.00 would be a great place to start my little nest egg!!

Answer Posted by |love_my_things

Answer 5:     I owe money to a relative who is living on a very limited income. I realize that $50.00 is a long way from what I owe her, but I have been doing my best to pay off this debt in small increments. She welcomes each payment she receives, no matter how small it may be. Therefore, I would definitely use this money to pay down my debt to her!

Answer Posted by |Shazzers

Answer 6:     Throughout my years as a single parent I always prevailed on St. Jude to guide me. Whether it be the rehabilitation of my youngest daughter from an auto accident, dealing with her bipolar illness, and after marrying, my husbands leukemia. Last year it was my oldest daughters mental breakdown. Through each crisis I asked St. Jude to guide me. As I found a resolution, or strength for each situation, I donated to a local charity that helps people in my community, or to a needy family at Christmas - in the name of St. Jude.

As I searched for a resolution to my personal financial crisis (pay day loans and credit card debt), I asked St. Jude for help. I found this website and the rest is history. Should I win this months QOM, I will make a donation in honor of St. Jude to one of the organizations who are aiding Haiti.

Answer Posted by |aubrey

Answer 7:     If I was to win anything whether it be a dollar or 50 dollars, I would have a few options on how to spend that money.

First I would consider just how much I really would like to buy something for myself, (like some nice relaxing lotion or body product, or even new bra, but since I make sure everyone is taking care of first including bills, before even consider I buying for myself) but then reality sits in and I know that I would either use it to put toward what I might have for groceries since I have 2 growning boys who literally eat me out of house and home, or use it toward gas, cause with gas creeping up to almost 3.00 bucks a gallon, I may need gas to get to work that week. So really, there are alot of things I would use it for.

I really doubt I will win, but atleast I got to take a second from work to type something other than a "please excuse my debt letter" LOL!!!!!!!!!!

Answer Posted by |lorim1971

Answer 8:     I would like to just spend it without a thought.

Buy all the good foods i love…and share it with

my best friend….delores…who always looked out

for me when i was down. Well, there is not too much you can do with $50

i could use it to sponsor someone into my business

that they could otherwise not afford to do at all.

Or simply order two of juniors of brooklyn

vanilla with fresh strawberry on top cheese cakes…

Heaven….

Answer Posted by |gotcheesecake

Answer 9:     I know that $50 is not much money, but to a 16yr old young lady (my daughter Samantha) who will be starting college this fall it is alot. Samantha will be attending the College of the Ozarks. It is a student run school where she will remain debt free for 4 yrs of school and graduate with all she needs to enroll into vet school of her choosing. At this wonderful school she will be working for the school 15 hrs a week and that will pay for her tuition. The only thing she has to cover for her first year is room and board of $4,300.00. Next year she will be allowed to work during the summer months and that will cover her next years room and board. So she is going to school and working parttime now to save as much as possible to go towards her room and board for this fall. What will I do with this money? Of course give it to my daughter to put in savings to help her achieve her goal for this fall.

Answer Posted by |AKAJDBeater

Answer 10:     If i win this question of the month, I will put it towards my debt on here to get out of debt. i figure if this site is going to provide a person to win a few dollars than the only thing i can think of doing is to give it right back to pay for my debt. after all that is why im here is to get help. this is a way even if its a little to help myself here. i would also say thankyou for the oppertunity to make a little contribution to my own debt. thankyou nancy

Answer Posted by |nancy coon

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2010
02/04
CATEGORY
Question of the month
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Strategic foreclosure: The mortgage crisis continues

Despite the best efforts from the Obama Government, more and more homeowners are embracing the idea of foreclosure over paying their mortgage. This action of the homeowners is called strategic foreclosure, i.e. the homeowners are walking away from their mortgages even when they can afford to pay. Their logic for doing so is simple- it suits their best financial interest.

Strategic foreclosure is an emerging trend and with its emergence the number of mortgage foreclosures has almost doubled since the housing bubble has burst. Now, one out of every four foreclosed property is a strategic foreclosure.

The overall decline in the property value has been determined as the main cause behind this consumer behavior. For many homeowners, the values of their homes have plummeted since the time of purchase, resulting in negative equity. But they’d still have to repay the entire mortgage amount. Given the situation, many are finding solution in foreclosing the property.

For example: a three bedroom house which would have cost around $500, 000 back in 2006 may fetch only $200k if you sell it now. Homeowners are finding it hard to continue paying the mortgage when there is no visible gain for them. By foreclosing the property the borrower can instantly save $300k along with a reduction in his monthly mortgage installment.

Foreclosure would ruin your credit report and you may get denied for another mortgage in the future because of it. But in spite of these negative aspects, more and more homeowners are deliberately falling behind their mortgage payments, allowing the lenders to foreclose on their homes.

According to the experts, neighbors can also influence the decision of foreclosing since it’s easier to bear the shame when there are many foreclosures in the neighborhood.

Whatever be the reason, the impact of foreclosures would be far reaching in the economy. Experts fear this trend to continue even in the coming days. If this continues unabated then the economy would soon fall into the spiral of declining home values. Major changes in the lending policies can only save the economy from a complete breakdown.

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2010
01/30
CATEGORY
About DebtCC
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Reduce your insurance cost to payoff debt

Insurance is an expensive yet necessary financial tool that we need to carry in the modern time. Insurance protects us from contingent financial losses from unforeseen events. Hence, insurance premium consumes a large portion of our budget. But there are ways that can help you in lowering the cost of coverage without sacrificing the protection and the money thus saved can be used in repaying debt.

This write up would discuss few such tips that can help you in reducing your insurance expenses successfully.

Reducing auto insurance costs

If you are driving, you must have auto insurance. Most of the states have mandated auto insurance for the drivers and so there are no ways you can avoid buying it. Now here is how you can reduce the premium you pay on the policy without compromising on the coverage.

  • Check your policy for unnecessary coverage. Ask yourself whether you really need the windshield and towing coverage on your car.
  • If you’re driving an old paid off car, you may forgo collision coverage on it. Check the car’s value in the blue book and decide if it would really worth after paying the premium and deductible.
  • Ask the insurer about all sorts of discounts. Teen drivers are expensive but most insurers also offer discounts on teen drivers based on their grades. Also there are incentives of good drivers.
  • High deductible lowers the premium. Hence, check out for higher deductible. But at the same time remember that you would need to come up with the deductible amount when needed.
  • If you already have health insurance you might not need PIP and/or Medpay on your auto policy. But you must consult your state laws before dropping them.
  • If your carrier is charging high, shop around for lower rates. Its competitive market and you may get rates that would suit your pocket.

    • Reducing life insurance costs

    Life insurance expenses can also be reduced and the saving can be put towards debt repayment. Check out the following tips.

    • Shopping around applies even for life insurance policies. So, get quotes from different life insurance carriers before buying.
    • Start early since life insurance premium depends on your age. The older you are, higher would be your premium. Also your lifestyle and health would affect the premium rate. Quit smoking, stay in shape and follow a healthy lifestyle for better rates.
    • Assess you life insurance need. Both underinsurance and overinsurance can upset your financial future. Cut costs on the riders that are redundant. Accidental death and dismemberment rider is one such example.
    • Your mode of premium payment can also help you in reducing cost. Try to opt for annual mode of paying premium. This way you can cut the cost of paying administrative fees every time. Also, chose a longer tenure for the policy as it’d help you in lowering premium.

    Getting out of debt means scrapping money from every possible source to pay down the debt burden. The steps taken towards reducing insurance expenses would allow one to save money which then can be put towards repaying debts.

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2010
01/22
CATEGORY
About DebtCC
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Should you pay in full or settle your debts

It can give a hard time to the debtor to decide whether to pay the debt in full or to settle for less. Unfortunately, there is no rule of thumb that can tell you which one is better. You need to decide depending upon your situation.

Opinions vary widely both between the industry professionals and debtors whether or not to pay the debt in full. But it is often said that when you can you may settle instead of paying a debt in full. It’d be the right thing to do especially when the creditor wouldn’t agree to remove the entry from the credit report.

When you are in default the account shows up as a negative item in your credit report and it would stay on it for a time period irrespective of whether you settle the debt or pay it in full. Hence, it might not matter if you settle the account for less instead of paying it in full.

When paid in full would matter over settlement

Paying a debt in full, however, might matter when you’re trying to repair your credit. During the process of home buying or auto loan shopping, paid in full accounts would be favored by the creditors over settled accounts.

You can also consider paying the debt in full if the creditor or the collector agrees to remove the information from the credit report if you do so.

Things to remember while settling an account

Whether you decide to settle or pay the debt in full, you must follow the steps mentioned below.

  • Obtain settlement offer in writing: Make sure that you get the settlement proposal in writing from the creditor. Don’t get into a payment plan until you receive the terms and conditions mentioned in a paper.
  • Negotiate for pay for delete: At times the creditor may agree to delete the negative entry from your report if you pay the account in full. The pay for delete would remove the item from your report altogether. It would help in repairing your credit score faster.
  • Ensure creditor writes off the balance: you must get in writing that the creditor or collector ensuring that the balance on the account wouldn’t be sold to another collector in the future.
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2010
01/16
CATEGORY
About DebtCC
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