Wednesday, November 17, 2010

Closing A Credit Card Account - Part Deux

It's a good feeling when you get your foot out of this trap!

I closed two credit card accounts today.  It was a good feeling.  As I noted in my earlier posting on this subject, the credit card companies will send you to a "closing specialist" who will try to persuade you to stay on, with enticements and add-ons.

Sometimes, they might offer you a new card, on better terms, as happened to me, once.

But the credit card companies seem to be getting wise to us on this account, as some of the "offers" they make nowadays are pretty lame.  Balance transfers, paltry reductions in interest rates, a free toaster, whatever.

As I noted in my Discover posting, there is little they can do to make that card attractive, as the interest rates are always in the double-digits, many merchants won't take the card, and the gimmick of cash-back is a sad joke and just a hassle to administer.

So that card got cut up and put in the trash.

Citibank had a decent card at 5.99% APR, but they added some sort of internet "cash back" gimmick that was just annoying - paying you back pitiful amounts of money that you could "spend" on internet retailers.  Why not just lower the interest rate and stop messing around with throwing pennies at us?

Anyway, about halfway through the year, they sent a letter saying that they could no longer honor the 5.99% interest rate and once the card expired, it would expire, unless we agreed to a higher rate.  I said "NO" of course, as I had a balance at the time.

So when I called Citibank, the "closing specialist" had little to offer me, other than the suggestion that I apply for a new card.  No thanks.

So we closed this account as well.

Note that the "closing specialist" at Discover argued that we should keep the account to improve our credit score.  Again with the damn credit score.  The tiny boost you might get from having an older account open is offset by the open credit line that subsequently limits your borrowing potential.

And since we are debt-free, what do we need a credit score for?  The credit score game is just that - a game they want YOU to play and to treat as important.  But you don't have to play.  You can opt out. 

You are not your credit score.

Another argument the "closing specialist" at Citibank made was that the poor credit card companies are taking a beating in the market because of credit card fraud and because of people defaulting on debts.  Oh, boo-hoo!  Let's see, they don't take fraud seriously or take serious steps to prevent it, because they are making 2-5% on each purchase you make.  They don't care, frankly.  And as for bad debt - they knowingly hand out credit cards with high limits to people they KNOW will never be able to pay it back, particularly once the interest rate jumps to 25% or higher.  They set up the consumer to fail, and then blame the consumer for their "woes" (and with the interest collected, plus the principle paid out in installments in bankruptcy, they rarely "lose" money even on those deals).  Sorry, but the Credit Card companies are crying crocodile tears.

I worried, very briefly, about closing these accounts.  We still have two Capitol One cards at 7.55% APR (not bad) and good service with no gimmicks.  If they bolt-on a gimmick to the card, we are like SO out of there.  No cash back, internet rewards, preferred seating, or airline miles, thank you.

If you need a credit card, you can get one very easily, if you are not in debt.  So there are no worries that you will "need" a card for, say vacation.  And you can even buy a pre-paid card and pay in advance, so you don't have to worry about interest payments or unexpected expenses when you get back from vacation, for example.

Credit card debt is an insidious problem for a large number of Americans.  Again, 70% of Americans claim they carry no balance.  The credit card companies report that 70% of Americans carry a balance.  Clearly we are lying - to ourselves, if to no one else.

The other night, I met someone who is financially responsible, but uses a credit card for all their purchases to get free miles or other ancillary bonuses. "We've always paid off our balance every month, for ten years, now," he said.  "Yea, but it's that 11th year that will get ya!" I replied.

The model of carrying a high-interest rate card with bonus miles, cash back, or some other unrelated reward feature is fraught with peril.  You might as well leave loaded handguns laying around your house.  All it takes is ONE MONTH with a late payment, and the interest can outstrip a year's rewards in short order.  Find yourself in financial difficulty due to an emergency, and you could end up having your rate jacked and NEVER be able to pay off the balance.  You are better off using a debit card, or keeping a low balance card with a low interest rate - and building up a cash reserve for emergencies in the future.

People want to live in denial, about their health issues, their finances, and in particular about their debts.  They tell themselves sweet lies, like "everyone is in debt, it's normal!" or "I'm not that far in debt!"  And they believe it and it helps them sleep at night.

But nothing is relaxing as cutting up those plastic monsters and just tossing them away.