What Good Are Credit Cards Anyway?

Sometimes it's a good idea to take all the credit cards out of your wallet and wonder why they are there in the first place.

I cleaned out my wallet the other day and removed several cards from department stores I seldom shop at, and one credit card that I no longer use. Why carry them?

I suppose it's the "what-if-I-need-them" syndrome at work. What if I get in a pinch and need to make a car repair? What if I accidentally wind up at the Mall and find a sidewalk sale at this particular store that is just such a deal I'd be a fool to pass it up? What if...

Seems like that's the problem with getting into debt with credit cards in the first place: We begin to lean on them to heavily in case of emergency or special deals. Then, silently, they pile up a hefty balance. If we are late making the payments, WHAM, there's another late fee, a nick on our clean credit file... and we've taken steps backward!

Better to remove the ammunition to your own financial funeral yourself. Clean out those wallets guys! Clean out those purses, ladies! Stash those cards away, out of sight and out of mind. Some of the cards probably need to be cancelled. If so, do it. If you do indeed see a need for these over the next year, then hide them away in a dark drawer.

Yes, credit cards ARE handy when they come with product protection. If you find a terrific closeout bargain, and you can take advantage of using the protection feature on an electronic item, then having those cards tucked away in your wallet is OK.

Man, is that wallet thinner now! Reminds me of that great Seinfield episode where George....

Pay Down Debt, Improve Credit Score

Get started fixing your FICO credit score by reaching into your wallet or purse and pulling out the plastic.

It's time to get serious about debt....

Your goal is to reduce your outstanding balances on all your credit cards. It's been reported that nearly one-third of one's FICO credit score -- 30% -- is based on the ratio of your credit limits and how much you owe on each credit card account.

Following through with maintaining this ratio on your own cards will go a long way to improving your own credit score.

Make it an iron-clad rule with yourself that you don't use more than 30-50 percent of your total available credit. This means knowing what your credit limit is, knowing how high the balance is, and making a deal with yourself that this balance will start coming down immediately!

So right now, do this: Turn those plastic cards in your hand over and call the toll-free numbers on the back of them. On a single piece of paper, write down the balance due, available credit left, next minimum payment amount that is due, and the due date.

List all the cards you have, whether you use them or not.

Now, write down in the left column, next to each, what your payments will be if you double the minimum payment this month. Total them up, and make plans to pay this new amount starting with this month's payments.

This could mean sacrificing spending money on something else. This could mean selling something so you can free up some monthly income to cover these newly self-imposed credit card payment increases. Whatever you need to do, do it. It will be worth it.

Having a credit card that's maxed out with a $1,000 credit limit tends to hammer your FICO credit score harder than if you have a $15,000 credit line on your credit card and you carry $5,000 in outstanding debt.

You can sometimes call the card issuer and request that they increase your credit limit to get you to this ratio, but it's easier to pay down the debt and eliminate the amounts you owe. Besides, having more debt could even be too tempting at times, and you definitely don't want to pile on any more to your credit card balances!

But by following the strategy listed here, you'll be taking action yourself to fix the problem, and within 6-12 months, with determination and discipline and good spending habits, you'll be amazed at how fast these credit card debts will disappear.

Yes, I know other credit guru's recommend paying down the credit card with the lowest balance, or the credit card that carries the highest interest rates first. That's a great strategy, but you need to first get your card balances in ratio to help improve your FICO score... then you can start down the path of debt reduction.

It's a good idea to always keep your oldest credit card, even if it isn't getting used any longer, as the longer you've had credit, the better. But don't keep the card if there is a stiff annual fee, it may not be worth it. Keep the next oldest card you have that carries no annual fee.