Also, closing down a credit card account can cause even more damage to your credit score if you have credit card debt. Let’s say you have three credit cards, each with a $5,000 credit limit, totaling $15,000. If, for example, you owe $3,000 on one card and $4,000 on the other card, but nothing on the third card ($7,000 in debt), then your debt to credit limit ratio (also known as your utilization ratio) is about 47%. If you close down that third credit card, you now only have $10,000 of available credit instead of $15,000 – you still owe the $7,000, so your utilization ratio increases to 70%.
Your utilization ratio makes up a whopping 35% of your credit score – the goal is to have the lowest utilization ratio possible. Closing down a credit card account, as explained in the scenario above, can raise your utilization ratio, which causes your credit score to plummet.
bY using cash instead of credit cards, you will stop shopping when you eventually run out of cash. With credit cards, there are no boundaries. When making a purchase in a store, physically removing cash from your wallet and being able to see exactly how much money you’re actually spending (rather than a quick swipe of a credit card) will force you to ponder whether or not it’s worth it to shell out your hard earned money to buy something you probably don’t need.
By the way, debit cards are not the solution either. Most debit cards charge transaction fees every time you use them. The best way to get out of debt? Stick to the paper.