Sometimes the solution to financial problems is to cut the cards

Since the start of the recession many Illinois residents have had to use their credit cards for basic needs such as groceries, utilities and even rent. This has left a lot of people with financial problems that they are struggling to deal with. Cutting up those credit cards and closing the accounts may be the right thing for some people to do even though it's not recommended.

Ordinarily, financial advisers wouldn't encourage consumers to close accounts even if they are paid off. This is because of the way that credit scores are determined. The more credit a consumer has available, the better the credit score.

If an account is closed, that available credit goes away, this could adversely affect a consumer's credit score. The payment history on the account, however, does not go away regardless of whether it is positive or negative. In addition, it is normally desirable to keep open older accounts since the age of an account also makes a difference when computing credit score.

However, for those that are trying to pay off their debts, but keep falling into a trap of paying down a card then using it again. In this case, closing the account may be the best option. As long as the account is being paid down on time each month, a consumer's credit score will recover from closing the account.

For those Illinois consumers that aren't able to pay their bills regularly, on time, or at least the minimum, their credit scores are mostly likely already adversely affected, and closing the account won't do much damage. Sometimes, the only way to fix financial problems is with drastic action such as cutting up the cards and closing the account. For others, filing for bankruptcy could also be a solution to financial struggles. Yes, a bankruptcy will adversely affect a person's credit score, but only once. When people are continuously not paying their bills, their credit score will continue to drop each month.

Source: dailyfinance.com, "The Surprising Downside of Cutting Up Your Credit Cards," Matt Brownell, June 5, 2013

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