<div class="block">Credit cards can offer many great benefits and perks but they can also be a burden for many borrowers. Scott Ferguson, certified financial planner, joined &#39;Stretching Your Dollar&#39; to talk about the pros and cons of deactivating credit cards and managing debt.</div>

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Stretching Your Dollar: Pros and Cons of Not Having Credit Cards

Credit can be a great tool for things like reward points, but it can also be a financial burden for some. So here to talk about what to do if you don't want a credit card anymore is Author of Living The Abundant Life and Certified Financial Planner, Scott Ferguson, Scott. I guess we'll just start with why might someone want to actually get rid of a credit card? Yeah, thanks for having me. I think everyone has that one credit card that they maybe got on a whim. Maybe it was in college because you got a free T shirt or something. So, I think it's important to take inventory of the different credit cards in your wallet and look at interest rates, fees, rewards. And as you do that inventory, you'll most likely find that there's one or two that maybe you don't use or don't have any need for anymore. And then you may want to get rid of that one card. What type of financial position should you be in when you decide to ditch your credit card? Yeah. One thing that we sometimes see is that people will use their credit card as their emergency fund. So if they don't have enough money to make it till the end of the month, they'll use their credit card to bridge that gap. And so I think you want to start and make sure you have a good emergency fund so that if bad things do happen, that you have money to deal with that. And then in general, if you're using credit cards because you're spending more than you earn, you definitely want to get your expenses under wrap and get organized in control with how you're spending your money. What are the pros of deactivating a credit card? I think the first pro is you probably will spend less. There's been studies that show that when you use a credit card, you tend to spend more than when you use cash because you don't feel it as much. So in addition to maybe spending less, you also don't have to deal with high interest rates as well as potential fees on the card. What are some of the cons? Yeah, there are a few good things about the credit cards. I mean, one, it's easy, right? So you don't have to carry around a lot of cash. If you have a credit card, you can also build up a credit score which will help you with maybe some major purchases like a home and there is some fraud protection when you use a credit card as opposed to a debit card. So if you have debt and you decide to go credit free. What does that mean for your finances? Yeah, I think the first thing is make sure you have a plan. Don't just run right into it. If you have a lot of debt, you need to look at the core root of why you got that debt. Are you spending more than you earn? And once you kind of have a grip on that, you may need to create a strategy to get out of that debt before you just go and cancel anything. Because the biggest part of your credit score is your payment history. And so you want to make sure that you can pay off your credit cards um before you go and cancel them. What are the first steps to going credit card free if that is a goal of yours? Yeah, so make sure you pay off the balance first and then if you have other recurring expenses that are part of that card, you want to make sure you get rid of those and then you want to follow their rules. So every credit card has certain steps you need to take to cancel it. You want to follow them the right way, you might want to redeem some of your rewards or points before you cancel it. And then once you've canceled that credit card, look at your credit report and make sure it says canceled by customer as opposed to canceled by issuer. What should people keep in mind when deactivating their credit cards? Yeah, there's two main things. One is if you don't have a lot of, if you don't have any fees, you may be able to just cut it up and keep it open. Um, but if you do decide to cancel it, it can have a negative impact on your credit score. And so there are two main things that I usually coach people to do. One is that your credit utilization ratio uh can be negatively impacted when you cancel a card. And what that is is it's the amount of credit you have divided by the amount your total credit limit. And so if you do cancel a card, you're reducing that total credit limit. So don't just pay off your credit card balance of the card, you're looking to cancel, also pay off other debts and that will maintain a similar or potentially even better ratio. And then the other piece of it is your credit history is also part of your credit score. When you look at your credit history, if you have two cards that are similar, but you've had one for six months and one for 15 years, you may want to hold on to the one you've had for 15 years to maintain that higher average credit history. Ok, good to know how can it not having credit impact your finances and really more broadly your financial future? Yeah, when you don't have any credit. There's people that get worried about that, but there are ways you can manually underwrite certain loans and get competitive rates. You usually do have to have assets and income to verify that you can pay those loans back. But you know, it can often reduce your stress a lot by not having to maintain all those different credit card and the balances and making sure you pay them off on time. All right. Thanks to author and certified financial planner, Scott Ferguson.