Do you find yourself with a wallet full of credit cards, but only use one or two? Do the credit cards that you opened in your younger years go with you everywhere, but never get used? Now is a great time to review and re-evaluate your open credit cards and lines of credit because many credit cards use the calendar year for rewards points and benefits. Since we are about two-thirds of the way through this calendar year, you likely have a good sense of not only this year’s spending pattern, but also how your shopping has evolved over the past few years. A store that you used to visit frequently may not be serving your needs anymore. You may have also noticed that the free shipping, special discounts or other rewards are no longer that beneficial to you.

I just finished going through a similar evaluation, and I must confess I never realized how tough it was to part with a credit card—especially a department store credit card.

Why is that? Perhaps it is because unbeknownst to you, you may have some positive feelings associated with a credit card. Is it a card where you opened it up because you got an extra 20% off on some big-ticket item that you dreamed of owning? Perhaps it was the department store where you have happy memories of back-to-school sales or family outings to see who could get the best deal. Perhaps it was from a big box store where you bought your first laptop computer. Can you imagine parting with a credit card from a sporting goods store where you bought all the equipment for your favorite sport or hobby? 

Of course, in the world we are in, the main credit cards are Visa, Mastercard, Discover and American Express (AMEX). These are the big dogs that rule the credit card universe and marginalize the value of any cards that can only be used for one store. In fact, many major retailers and businesses have partnered with one of these cards and converted their store cards to one of these four.

These reasons for clearing out unused credit cards should motivate you even more to complete an evaluation:

1. With so much fraud and bad actors trying to hack accounts, the fewer cards and accounts you must track, the better. This is especially true if you ever lose your purse or wallet. When that happens, time is of the essence, and the fewer companies that you need to contact to report lost or stolen cards, the better.
2. Many cards have some type of reward system, cash back, or other incentive. When you have multiple cards, you may be impeding your ability to earn greater rewards or benefits, because you are spreading the purchases among multiple cards.
3. You may want to close the little utilized cards, and then request an increase in the credit limits of your main cards. That way, if you have a major purchase that you want to put on a credit card to earn points or rewards, you can put it all on one card.

Of course, the advice above is primarily for those who pay off their credit cards each month, and only use them for convenience. If you carry a balance each month, there are other factors that you should consider when evaluating your cards, starting with the interest rate charged and other lower cost financing options you may want to consider. 

I must confess that it is always a bit traumatic to break up with a credit card, especially one where “we have a history”. However, once the call has been made and the nice person on the other end of the phone says, “You can just cut up your old cards”, it is a huge relief. I can move on in life. 

Typically when I’m in this mode of account closing or reevaluation, just for the fun of it, I usually like to jump over to www.annualcreditreport.com to look at one of my three free annual credit reports. It’s always interesting to see if there is anything weird that has popped up since the last time that I looked at it. Now that I have been paying attention and spending time over the last few years closing out open lines of credit, reviewing this report is quick and easy. Which is yet another benefit of this onerous chore: It is one less moving part in your life.

One word of caution is if you have any concerns about the impact on your credit score. Depending on the type of account you are closing and the available credit line, it may improve your score, but it could also decrease it temporarily. If you are intending on making a major life change, such as starting a business or buying a new home, you may want to hold off on any changes until that transaction is finalized.

As always, we are here to help you navigate some of these issues and make your life simpler, so please reach out if you would like to discuss your specific situation further. 

Kristina Bolhouse, CPA/PFS, CFP®

Vice President/Shareholder

© 2023 Kristina Bolhouse and The Arkansas Financial Group, Inc., All rights reserved.

The Arkansas Financial Group, Inc. is a Fee-Only Financial Planning Firm located in Little Rock, AR serving clients in Arkansas and throughout the country.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by The Arkansas Financial Group, Inc. [“AFG]), or any non-investment related content, made reference to directly or indirectly in this commentary will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this commentary serves as the receipt of, or as a substitute for, personalized investment advice from AFG. AFG is neither a law firm, nor a certified public accounting firm, and no portion of the commentary content should be construed as legal or accounting advice. A copy of the AFG’s current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request or at www.arfinancial.com.

Please Remember: If you are a AFG client, please contact AFG, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.