Three Reasons to Shred Your Credit Cards

There are three issues with credit cards for someone whose goal is to build net worth and financial peace of mind. First, they give us the illusion that we can have whatever we want, right now. Second, even if we do pay them off every month, they make it harder to stay on top of our current financial status. Third, they encourage us to spend money we haven’t earned yet.

Credit cards give us the illusion that we can have whatever we want, right now. A friend of mine had the oddest relationship with her credit cards - they were either her best friends or the father she never had. At any rate, she turned to them to provide what she wanted.

I realized how far I had gone down that path when Bank of America recently cancelled one of my cards. Mind you, I carried a small balance, paid on time every month, and was way below my credit limit. I felt abandoned and betrayed, like a good friend had walked out on me and taken my shopping privileges with her! After a suitable period of anger and fear, I realized several things. (1) Bank of America is a company, motivated by profit. It is not a personal friend of mine. (2) Since my goal is to live within my income, they had done me a huge favor. BofA had stopped being the bartender to my alcoholism. They ended my access to the “endless money” illusion.

If you are a person who pays their cards off every month, I still recommend shredding them. Money works best when it is visible and credit cards allow for invisible spending. You can counteract this by recording every credit card transaction in your checkbook register so that you know your true available balance, but is it really worth the hassle?

It could be said that there are three places to find money: the past, the present, and the future. The past means spending money you earned in the past and have saved up. The present is your current earnings or other income. The future means borrowing - you are spending money now that you have not earned yet. Clearly, your best strategy is to spend from current income and set some aside for the future. Credit cards sabotage that process by making it easy to spend money mindlessly.

The benefits of not using your credit cards include that you will always know how much money you have available, that you will be less tempted to spend money you haven’t earned yet, and, best of all, the money in your checking account is yours. Getting rid of your credit cards gives you peace of mind and power with your personal finances.

P.S. If shredding your credit cards seems too drastic, you can also freeze them. Putting them in the freezer in water in an opaque container works too. If you don’t have six to twelve months of expenses available in liquid savings, you might want to think twice before you cancel any accounts.

P.P.S. Ok, ok, don’t shred them all. If you shop online or if you ever need to rent a car, you will need one card. You might consider sending a payment to the credit card company the same day you make the purchase.

Becky Jensen has been helping people manage their personal spending since 1989. She can be reached through her web site at www.2prosper.com.