Opal

“Dear Steve,

I have two or three credit card that are debt free. Should I close these accounts since I don’t use them and don’t need but one active card?

Would it go against my credit to close these?

Opal”

The Answer:

Dear Opal,

As strange as this may sound, with only two or three credit cards to your name it does not make much sense to close any of them, and here’s why.

Your credit score is calculated using a number of different factors. One of the most important factors is how long you’ve had credit. These cards help to improve your credit report and credit score because you’ve had them for a while and they are not maxed out or delinquent.

If you can lock them away someplace safe, then I would do that rather than close them. I’m assuming that you are not having to pay an annual fee for any of them either. If you are paying an annual credit card fee then we should think about closing that card but only if it is not your oldest credit card. You can also call your creditor that is charging you an annual fee and tell them that you don’t want to pay it. About 75% of the time they will waive the annual fee then.

The way to discover when your cards were opened is to get a copy of your credit report and check the date opened that is reported to the credit bureau on your credit report.

You should also use the oldest card from time to time and pay the balance off in full at the end of the month. This will show some good credit activity on your credit report which will help to improve your credit score as well.

If you just went in and randomly closed cards, yes, it could hurt your credit score.

Big Hug!

@GetOutOfDebtGuy

The Answer:

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Daniel says, “I’ve been buried in credit card debt and it feels like I make payments each month and instead of things going down, things go up. My interest rates recently went up even though I have not missed a payment or paid late. Another one of my MasterCard’s just lowered my limit a lot. Is there any hope. Thanks”

Daniel,

Thank you for contacting me. I’ll do my best to answer your question honestly and openly.

There is nothing about credit cards that operates for your benefit or that you have control over. The banks issue the cards, raise and lower the limits and play with the interest rates as they want.

Banks are self-centered and only care about their risk and reducing their liabilities and so when they shrink credit limits and that leaves you more maxed out on the remaining credit and that hurts your credit report and credit score, quite honestly, they don’t give a shit.

The credit card company is concerned about only one thing, profit. I’m not being cynical here, just dead honest. Profit is what it is all about. Profit is what fuels the bank and the little guy, like you, we’ll you’re just a number on a screen. You are a cog in the wheel to help them generate profit.

The banks know that they can increase profit by increasing interest rates. The balance becomes how much to increase interest rates without chasing customers, profit machines, away. If you’ve got shitty credit, they’ve really got you by the short hairs. You are probably not going to find a better deal elsewhere.

When the economy looks great, banks will pass water out like ecstasy at a rave. When the economy looks bad and losses are creeping up then banks start cutting and pruning to minimize their financial risks, which may hurt their profit.

Past due credit card accounts are rising. They are up 22% since this time last year because people are just getting so close to the financial edge that they are having a tough time paying the bills. And as wages contract people often turn to the credit card as a way to make ends meet. Balances go up and repayment becomes less affordable.

It is reported that consumer credit card debt has doubled since 1996 and is now cruising at around $1 trillion and while even though that number sounds really big, it’s not when compared to what it will be by 2018. The amount of consumer debt hasn’t leveled off, it is still on the climb.

Credit card companies don’t make a profit unless they poor more debt into the economy and more people use it. Banks can’t stop lending. Banks need you to go into debt.

The only real protection that consumers have is the law and right now the law lets banks do pretty much what they want to. Banks are able to change how payments are applied to your account, change the interest rates, fees and grace period, eliminate your rights for an impartial arbitration, and more.

Until the federal government gets the balls to pass laws that actually protect consumers, like through Obama’s Credit Card Bill of Rights, you don’t have much power to change what they are doing unless you pay your balance off in full and no longer carry a debt owed to any credit card company.

When you carry a balance on a credit card you are truly nothing more than a modern day slave, working hard to obey your master, the bank.

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This information is for all the people who keep emailing me about the “secret Obama backed bailout plan for free government money to pay off credit card debts.” You win and I’ll tell all.

I’m not sure who let this rumor out of the bag but if I find them I’d have a very stern talk with them.

Maybe the problem is that while people keep reading the news about large companies getting billions of dollars in bailout money, they assume that there is free money waiting for them.

I’m the first to agree that if we want to quickly stimulate a consumer based economy to drive people back into the stores to shop, spend and buy, that paying off consumer credit card accounts is a good way in the short run to do just that.

The only similar thing I can remember is a Kuwaiti government plan to pay off consumer debts.

I hope this is the last time that I have to write about these alleged programs that do not exist. There is no free money or government money that is being given away to pay off consumer debts or credit card accounts.

The only pseudo free money available in government money would be one of the government grants that are available. Once you take a look at the available government grants that are hyped as free money you’ll see what is really available.

I’ll never say never but I would seriously doubt that the U.S. government is ever going to give away free money with no strings attached to let the average person pay off their bills. And if they do, and I’m wrong, the first round is on me.

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Over and over again through print or on the airwaves it is being said that bankers have learned their lesson from the current economic crisis and credit will no longer be extended to people in the subprime market.

While we hope that banks have learned their lesson that bad things happen when you lend to people most likely to default, they haven’t. And why will subprime lending return as soon as possible, profit. Prime loans or lending to people with a good credit report and good credit score also returns the least amount of profit. Prime loans and Alt A market loans are the most desired customers and the most fought over. This competition creates a downward pressure on interest rates charged the customer so this crowd gets the lowest rates that generate the least amount of profit.

Prime and Alt A market credit card accounts, home loans, car loans, etc. also generate the lowest amount of fees and penalty income simple because the primeish consumers pay their bills on-time and behave within their contractual obligations. So who generates the highest fees and penalty income for the banks, yep, the subprime market.

Subprime consumers, that is consumers less than those who don’t default or pay late, are like heroin for lenders. While they may be publicly detoxing right now, it won’t be long before the banks will be jonesing for another hit of the pipe or another dirty needle. Maybe the recent government bailout for banks is actually more like an Amsterdam needle swap program?

Banks can’t make massive profits to appease investors by lending only to the least profitable and safest borrowers. It is inevitable, they will go back to the street corner, first in disguise under other names and then back into the open.

Should we be able to trust banks, credit card companies, and lenders from not wandering back into the dark default waters again? We should be able to but we can’t. The very banks at the heart of the current financial crisis employ or employed some of the highest paid brainiest people who engaged in lending above market value to people who could least afford it and then repackaged those loans over and over again to firms around the world who in turn did the same thing damn stupid thing.

Think about it like this, the current economic crisis is like a drug war. The blame right now is being cast on the users that bought the bad drug and consumed it. Bad users, dumb users. But the user was told that the drug was good, safe, priced right and if you don’t buy it now you’ll lose out. Of course people bought it.

If we want to prevent this situation from happening again then the only real hope is to provide hard and concrete rules, like the kind that come with a board game, about what the pushers, sorry, banks can say and do. You can’t stop drug distribution on the street corner unless you stop or control the distribution network.

The truth is that bankers, credit card companies and lenders cannot be trusted or allowed to self-regulate because the lure and attraction to profit is too powerful a drug. Sure it will speed up the economy but how fast will it go? It is a lot like saying that we don’t need police enforcing speed limits because we trust drivers to exercise prudence and drive at the appropriate speed for the road. Knowing that there is no enforcement, drivers will drive faster and faster and more accidents will result.

As soon as the recent wave of economic pain and punishment is over consumers will say “Please sir may I have some more?”, and the lenders will only be to happy to comply because it generates profit and it is almost a patriotic duty. Why patriotic, because government is saying, “Dear consumer, please go out and spend again to save jobs and companies. We are counting on you to do that.”

Governments are desperately trying to save the sinking economy by begging and bribing banks to “start lending again”. But isn’t it unregulated lending that led us into the economic mess we are in to begin with?

It seems that if we are going to print new currency to address the current economic crisis that it would be much more effective to pay off the credit card bill of every consumer than to force funds back onto banks and encourage them to lend more to swamped consumers and businesses. If we pay off the bills what will people inherently do, that’s right, consume.

Bailing out banks might boost the banks activity at this moment but what will happen when they break their logjam and begin to lend more freely again to more and more consumers that will add to their pile on the debt? The banks will be saved but the disposable individual consumer will be sacrificed in a second wave of economic turmoil.

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