5 situations when it's OK to close a credit card: sometimes it's all right to go against the grain.

Author:Royal, Leslie E.
Position:Money: CREDIT MANAGEMENT
 
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WHENEVER MACY'S ANNOUNCED A SALE on Jones New York suits or high-heeled sandals, Deanna S. Walker would dash to the department store. And when her husband would travel for his business, it was such a convenience to pay at the pump with their Amoco gas card. However, the result would sometimes be a carryover of the balance since determining their monthly income was difficult with him being self-employed.

"In 2008, I closed the Macy's card. I did so to become more fiscally responsible," says Walker. "Closing it helped me control the urge to charge items unnecessarily," she explains, noting that cancelling the card helped her address bad spending habits.

"This was the right decision based on my goals to reduce and manage debt."

Most experts say cancelling a credit card is generally not a good idea because it lowers your available credit and can decrease your FICO credit score as well. They suggest, instead, that you simply toss it in the shredder. The account will remain open and you will have the credit line on your report. But if you find yourself ordering a new card or purchasing items online with your memorized credit card number, you may need to take more drastic steps. In those cases, it's permissible to break the rules of credit management. But before you do, make sure you're not applying for a loan in the near future. Even the smallest dip in your credit scores can increase your interest rate or cause a loan to be declined.

Experts have provided five situations in which it's OK to close your credit card.

  1. You're tempted to overspend. This can lead to excessive credit card debt for the undisciplined person. "Being addicted to credit is a real issue for some people," says John Ulzheimer, president of Consumer Education at SmartCredit.com. "For those folks, it's simply better to avoid the credit card environment, and closing their cards is the best way to do so."

  2. You have too many cards and need to cut back. It's best to have three credit cards for general use. This allows flexibility if one of the issuers changes the interest rate or annual fee. Having more cards than this...

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