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You have (finally!) paid off that high-interest credit card debt. Should you cancel your card?
It depends.bigstock-Stack-Of-Credit-Cards-1398713 (2)
If you plan to apply for a new loan in the near future, don’t close the account. Your credit score will dip for a few months immediately after you close a credit card. Secure the new loan before you cancel the card.
In the long term, whether or not to close a credit card account depends on you.
If you have the will power to not incur credit card debt again, keep the card.
Keeping the card will boost your credit score. 30% of your credit score is based on your “utilization ratio,” the amount you owe as a percentage of the amount of credit available to you. You want a low ratio. Having unused, available credit will help lower your ratio.
You will also have the card for emergencies and as a back-up if another credit card is lost or compromised.
If you will be tempted to charge this card beyond what you can pay in full each month, close it.
Credit card debt is expensive. Unless you have an emergency, it is better to live on cash and save ahead for large purchases.
At the Federal Reserve’s Credit Card Repayment Calculator,  I calculated the cost of a $2,000 balance at 11.00%. Paying off the loan at the estimated $40 minimum monthly payment would take 11 years and cost $1,190 in interest. Why incur such debt again?
You can opt out of receiving unsolicited preapproved credit card applications by visiting http://www.optoutprescreen.com or calling 1-888-567-8688. According to the FTC, this phone number and website are operated by the major credit reporting companies.
 
 


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