Ask Unclutterer: Credit card clutter

Reader April submitted the following to Ask Unclutterer:

My husband and I have one credit card that we allow ourselves to actively use. By actively I mean it is the one we use to buy airline tickets, etc. but we pay it off right away BUT we have several credit cards going way back to our time before we met….most of them don’t have balances but a few do. The balances are the result of the old game of moving balances around to get a great rate until we can pay them off. So there are NO new purchases on these cards at all ever, just balance transfers. So how long do I need to keep those statements? I have so much paper from these cards. What the heck do I keep and what can I shred?

I want to begin by laying out my financial principles before delving into specific answers to your questions. These are the fundamental guidelines I follow for uncluttered living:

  1. Do not carry consumer debt. The only debt you should ever consider acquiring is a home mortgage and student loans (and, I’m not really in favor of student loans). Everything else should be purchased outright, including automobiles. Live within your means and you will never have to worry about debt cluttering up your life.
  2. If you must, use a charge card, not a credit card. For conveniences like purchasing airline tickets and renting cars, you may want to have a charge card. Pay this balance in full every month. Never carry a balance for more than 30 days.
  3. Save as much as you spend. If you have a steady paycheck, set up with your human resources department to have your salary automatically deposited into three accounts each month. After taxes and your retirement savings are pulled out by your company, have 50 percent of your take-home earnings deposited into your checking account, 40 percent into an emergency savings account (to cover things like large medical expenses if you should ever suffer a severe illness or injury), and 10 percent into a savings account for big and/or fun future purchases (vacations, cars, etc.). If you don’t have automatic deposit with your company, make these three deposits yourself. Once your emergency savings account becomes more than $5,000, talk with a financial planner to see if this money should be moved to a better performing investment. When you have saved half a million in emergency savings (and I’m no where close to this amount yet), you may wish to consider adjusting these percentages.

As I just said, these are the guidelines I have chosen to follow. Living this way is the only way for me not to worry about money or financial issues. You may be able to live with car loans and consumer debt and not be distracted by worries about having enough to pay your bills or what you would do if you needed a large amount of money in an emergency. I can’t live that way, though. If I have debt, I think about it, and I don’t want that kind of clutter in my life.

Knowing this about my financial guidelines, I think the first thing I would do is cancel all of the credit cards that don’t carry any balances. You don’t need them. Having them active runs the risk that someone can steal them and incur thousands of dollars of debt in your name, fills your life with paper statement clutter, and is a spending temptation. (Cancel them on a schedule, per Vida’s advice in the comments, if you are worried about your credit score. Also see “How and when to cancel a credit card” on Get Rich Slowly.)

Your next priority should be to pay off all of your balances on your not-current cards. Dave Ramsey suggests paying off your smallest balance first so that you get a relatively immediate satisfaction. I recommend paying off your highest interest balance first since it is the card that is wasting the most money. Choose whatever system works best for you, but pay off the balances. Once the balances are gone, cancel the cards.

Pay off the balance on your “actively used” card, cancel the card, and open a charge card account with someone like American Express. This way, you won’t be tempted to carry a balance from month-to-month, but you can still accrue awards points for the charge card purchases you do make.

After you cancel the cards, keep your statement that acknowledges you canceled the card and closed the account with a zero balance. You have no need to keep any additional paperwork once you have this statement from the financial institution.

As for your charge card moving forward, when the statement arrives each month you need to reconcile it with your receipts. If all charges are correct, file the monthly statements in a folder in your filing cabinet and shred any receipts you don’t need for tax or legal reasons. When you receive your annual statement, reconcile your monthly statements with the yearly statement to make sure that everything is correct. Under the advisement of my accountant, I keep monthly statements for three years and annual statements for the life of the account. However, I know some accountants suggest keeping monthly statements for seven years and others say get rid of them after you receive and reconcile your annual statement. Talk to an accountant and follow the advice he/she gives you for compliance with your state’s laws and practices.

And, remember, this is what I would do. I am sure that our readership has significantly different opinions and suggestions, so definitely check out the comments. Also, you may wish to check out Regina Leeds’ book One Year to an Organized Financial Life and Dave Ramsey’s The Total Money Makeover for even more ideas.

Thank you, April, for submitting your question for our Ask Unclutterer column.

Do you have a question relating to organizing, cleaning, home and office projects, productivity, or any problems you think the Unclutterer team could help you solve? To submit your questions to Ask Unclutterer, go to our contact page and type your question in the content field. Please list the subject of your e-mail as “Ask Unclutterer.” If you feel comfortable sharing images of the spaces that trouble you, let us know about them. The more information we have about your specific issue, the better.

75 Comments for “Ask Unclutterer: Credit card clutter”

  1. Profile photo of

    posted by Sheryl on

    “When you have saved half a million in emergency savings… ”

    Not saying it can’t be done, but realistically, I don’t know ANYBODY that can save that much money – but then I live in Southeast Michigan and everybody I know (including us) is living off of whatever meager savings we’ve managed to accumulate…

    However, I do agree with this post. We paid off our credit card debt (about $10,000) 14 years ago and determined then that if we couldn’t pay cash for something, we wouldn’t buy it. We now use a debit card.

    The only debt we have right now is our mortgage (cars are paid for), which is a real Godsend since my husband was laid off in 2006 and has only worked 10 months since then (though he does have a job interview today – HALLELUJAH!)

    We’ve had to live on withdrawals from our IRA and unemployment benefits (which are running out), but since we don’t have any debts to worry about, it’s been very do-able. I don’t know how we would have made it otherwise.

  2. posted by Becca on

    I disagree with the advice on canceling all of those cards. While it’s fine to cancel a couple, canceling many cards at once can do real damage to your credit score because it “flags” you as a risk. It doesn’t make much sense but I have been warned by many financial advisers against it. I would consult with someone who is an expert on credit scores and finance before moving ahead with that.

  3. posted by Katie Alender on

    For the actual paper clutter, nothing beats a sheet feeding scanner, like the Fujitsu ScanSnap.

    I recently scanned hundreds of pages of old screenplays we had sitting on a shelf… a cubic foot of closet space, earned back in about an hour of scanning. Someday I’ll tackle boxed-up financial documents!

  4. posted by chacha1 on

    Good luck to you and your husband, Sheryl! I’m with you on the half-a-million saved. Bwa-ha-ha-ha!

    I also agree with Becca (and with the majority of PF advice) that closing all your credit accounts can really ding your credit score, which affects a lot more than your ability to get an inexpensive mortgage. Recent articles on The Simple Dollar and Get Rich Slowly address this in detail.

    That said, I wholeheartedly agree with Erin that unpaid debts are the worst kind of clutter. Even if you can make all the payments, why would you want to make them for even a day longer than you have to?

  5. posted by Mrs. H-B on

    Also echoing Becca. It’s totally counterintuitive, but can really ding your credit for a long time, making it difficult to get good mortgage rates, if you cancel cards. Be careful!

  6. posted by Vida on

    Any time you cancel a credit card it may negatively affect your credit score due to the factors used in calculating your FICO. Therefore, most financial advisors do not recommend canceling all of your credit cards that don’t have balances at once. Instead, cancel one card at a time, wait to see the effect on your FICO, then wait an appropriate amount of time before canceling the next. Good rules of thumb regarding which ones to cancel first are cancel those with large annual fees first. Then cancel in order of decending APR.

    Furthermore, remember that your credit score is affected by your credit card utilization (the ratio of balances to credit limits) thus, you might want to consider keeping at least one card, with a firm commitment to yourself to never use the card.

  7. Profile photo of Erin Doland

    posted by Erin Doland on

    @Becca and @chacha1 — Except for obtaining a mortgage, a credit score doesn’t matter at all. If you aren’t accruing debt, you don’t NEED a credit score — good or bad. If April and her husband aren’t planning to buy a house in the next five years, I still agree wholeheartedly with canceling the cards. Do it in stages like @Vida suggests if you’re worried about it. But seriously, if you don’t use credit, you don’t need a good credit score. The only institutions that care about your credit score are those that want you to accumulate debt.

  8. posted by Deborah on

    @Erin –
    Other people besides institutions who want you to carry debt care about your credit score. Off the top of my head:
    1. Anytime you rent an apartment. (though in this current economic climate it probably doesn’t matter as much – landlords want to do it)
    2. If you work for a bank or any sensitive government position they will run your credit score to determine if you’re at risk for blackmail, theft, or bribery. (This I know from personal experience.)
    3. And I’ve heard of various individuals at non-financial or government sensitive positions (i.e. regular consumer related jobs) that will run a credit check before hiring a new employee.

    Again these situations aren’t applicable to most people and this is definitely not a supporter of consumer debt — just another note of caution that good credit while not necessary might still come in helpful. But good credit can still be achieved with zero consumer debt.

  9. posted by Melissa on

    Personally, I think $500K is a lot have in an “emergency” savings. Better to have 3-9 months living expenses and then start an IRA or some other retirement savings.

  10. posted by Kim on

    @Melissa That’s a good point. Is the $500K in addition to a retirement fund, or functioning as one?

  11. posted by Tamara on

    Insurance rates can also be affected by your credit score. And if you do decide to close most of your credit cards, be sure to leave open the one you’ve had the longest, as longevity factors into the score.

  12. posted by mibsphil on

    Previous posters are correct that it’s a bad idea to cancel those unused cards. Your credit score is determined, in part, by the ratio of debt to available credit. This ratio is more positive when you are holding cards with no balance. And a good credit score is extremely important, whether or not you’re looking to acquire a new credit card. All sorts of decisions are made based on your credit score, sometimes even including whether you are hired for a job. Ignore the unused credit cards, don’t use them, and don’t cancel them. And regarding those lofty savings goals: if you live in an expensive area, as I do (Boston), there’s no way in the world most people could manage to save that much money on a regular basis.

  13. posted by lh on

    Credit scores can affect a lot more than your rate (or eligibility) for a mortgage. Some employers run checks on applicants, your car insurance rate is based partially on credit score, and most landlords will check credit reports. I’d be really careful with the “credit score doesn’t matter” mentality because it does affect you even if you never plan to take on debt

    My advice would be to figure out which card is the oldest. Whatever you do, don’t cancel that one — it establishes your length of credit history, which factors heavily into your score. Canceling the other ones when you’re still carrying debt on other cards will also affect your score because your debt to credit limit ratio will move up. As long as you don’t put yourself in a situation where your total credit card limit is nearly maxed out, you should be OK. Try to keep utilization under 50%. Obviously, you should really try to get it to 0%, but until that debt is paid off don’t cancel all your cards but the ones with balances if it’ll put your utilization over 50%.

    Regarding the original question, I get all of my statements delivered electronically and file them indefinitely. The files are so small, it wouldn’t be worth it to go back and delete the old ones. For the paper copies you already have, the 7 year rule seems reasonable, but I just scanned everything that I couldn’t download so I wouldn’t have to deal with any paper. Your cards’ websites may have PDFs available for download going back years (CitiBank is really good about this) so you might be able to dump all the paper.

    I don’t bother going through each of my statements and reconciling them, I just use Mint.com to keep an eye on all my accounts at once. The only time I need to look at the statements is if I see something I don’t recognize. Mint is also a really easy way to track budgets without spending all your time entering data.

  14. posted by MB on

    “The only institutions that care about your credit score are those that want you to accumulate debt.”

    Actually, I doubt my electric company, my insurance company (not applicable in all states), or my landlord are interested one way or the other on me accumulating debt, but I paid for my lack of a credit score anyway. Having a bad (or nonexistant, which in some cases is worse) credit score opens you up to very high deposits or fees, or being passed over for a rental. This recent Simple Dollar post has a good discussion of the issue: http://www.thesimpledollar.com.....lifestyle/

    Of course you can live without a credit history or using credit, but you shouldn’t do it without taking a little time to consider the risks. It’s not the answer to everyone’s problems– and it sounds like the reader has a handle on the personal finance aspect of things, anyway.

  15. posted by Vida on

    Tamara’s made a good point that I forgot; the longevity of an account also factors into your FICO.

    Something I’ve been thinking about while reading this discussion is that this blog is about UNCLUTTERING, not necessarily using your money in the most efficient way possible. (For example, I’ve read a few financial planning books for non-experts like me who recommended that you should have a card with excellent bonuses or incentives. If you use that card for regular expenses, but ALWAYS pay off your monthly balance, you can get bonuses for free. But, this type of vigilant, efficient use of cards, is far from simple.) Thus if you’re really seeking simplification, it might be a good idea to slowly and thoughtfully cancel most of your cards.

  16. Profile photo of Erin Doland

    posted by Erin Doland on

    I added a line up in the original post about canceling your cards on a schedule if you’re afraid of damaging your credit score … but I still think it’s irrelevant. I never had a credit score until I got the mortgage on my house. I wasn’t even a person, according to the two of the three companies that create the score. I never had any issues renting a place or getting a job or passing a security clearance, and didn’t have any with the mortgage, either. Granted, banks were handing out mortgages like candy when I bought the house … but I still got the house.

    As I said repeatedly in the post, the advice I’m giving is what I would do. Debt and credit are clutter to me, much more so than worries about a credit score. On a daily basis I know I would be obsessed with thoughts of owing a creditor money and if I had enough to pay the bills than I ever would worry about what a company rated me in their scoring system.

  17. posted by Shelly on

    Erin, I know this is not the focus of your post but your statement against student loans has peaked my interest. Can you please elaborate on where you stand regarding them and why they are discouraged, as it pertains to me in my life currently and I may greatly benefit from your guidance on this financial matter.

  18. posted by Vida on

    Hi, Erin. Sorry for the multiple comments on this post. This will be my last one.

    Get Rich Slowly has what I think is a really thoughtful article on whether, how, and when to cancel a credit card. You can find it at
    http://www.getrichslowly.org/b.....edit-card/ if you’re curious.

  19. posted by Rue on

    If the problem is simply the paper clutter, couldn’t you simply have them all switched to online-only statements? Most credit cards allow you to access statements online (and even if they didn’t, you can always order the statements through your card company). Then you also reduce the paper clutter of receiving a bill every month. Just make sure that you have a notification sent to your email when your payment is due, or write it down on a calendar, etc.

    As you pay off the debts you can hopefully then stop having notifications from the card company sent to you. You may want to close the accounts, which is fine UNLESS you are planning on shopping for a new loan, looking for a new job (some employers check credit), or looking for an apartment. Those are the only reasons that your credit score means anything. If those things are not in your future, then close away!

  20. posted by Erin at Unclutterer on

    @vida — Good link! Thanks!

    @Shelby — My opinions on this are based on my personal desire to not accumulate debt. Simply, I don’t buy what I can’t afford. It took me six years to get through undergrad because I had to take time off to earn more money. However, education loan interest rates are incredibly low, so I understand why people use them.

  21. posted by Patrice on

    We use credit responsibly by paying bills off each month and also realize the importance of credit scores. We are self employed and we need bid bonds etc. Our personal scores become important in that process which has nothing to do with us applying for credit for personal use.

  22. posted by C Bennett on

    I use a credit card, not a charge card, but I treat it like a charge card; I never spend more than I have in checking at any given moment. I would never go to a charge card – I get cashback and other perks from the credit company that I just wouldn’t get otherwise. When I was in college, I paid my tuition on a credit card (and immediately paid it off out of checking). It’s free money – why not take advantage?

  23. posted by TanyaZ on

    As Erin mentioned before, the impact of the credit score on your life is very much overestimated. Yes, employers, like financial institutions do check your credit report (not score!) before hiring you. They want to make sure you are not SMOTHERED in consumer debt, have not skipped out on debt, don’t have judgements against you, or have not lied about a bancruptcy. This definitely not the case when you can get yourself hurt by closing a paid off credit card, like Erin recommends. Generally, the same thing happens with insurance and electric companies – they don’t need the score itself, but want to make sure you have not defaulted on your obligations all over town/country.

    Now, regarding the length of your credit, which is definitely one of the biggest components of the score. Even though it is possible to ding your score by cancelling the oldest credit card, it will take seven (7!) years before that card’s history will be completely off your report. When it happens, the next longest credit line will take over for the length of the history. So, unless you plan to close every credit account and pay off your mortgage, and not have any other accounts open for 7 years, you will still have fairly subsctantial credit length.

    Another thing to remember is that credit score includes all of the revolving accounts you had in the last 7 years, and even if the account closed, you will still get the good points for having a paid off account. It is not a joke – I get good points on my report for an account that I changed my mind about and never activated the card, as it appears as a paid off closed account on my report.

    As far as the availble credit limit is concerned, you may get yourself in a bit of trouble if you have one charge card, and it all depends on when you pull the report, and how utilization is calculated. Basically, even if you pay your charge (or any credit) card every month, it still reports your closing balance to the scoring agency. Your maximum credit line for a charge card like AmEx is usually calculated as the maximum amount you had at the close day through your account history. So, if you pull the report right after you went on vacation and changed up the largest amount on your card, you may get 100% utilization, which will subsctantially ding your score. Obviously, as soon as you pay the card off, and the statement closes, you will get back to 0% utilitzation, and the score will go up. So, as long as you are mindful of that, you should be OK.

  24. posted by Noah on

    Good advice, except like others have posted about cancelling the credit cards. I would cancel them slowly, one every 6 months or so, and even then I would keep the ones without any annual fee.

    Personally I have a Mastercard-branded debit card linked to my checking account, an American Express, and a Visa credit card. I use the AmEx for almost everything because I can earn travel points, since its a charge card I have to pay if off each month. I use the debit card for almost everything else.

    The Visa is a no annual fee card that I keep around as a “just in case” card. I’ve had it since my freshman year of college, and used it extensively before I got the AmEx. So I keep it around to help my credit score.

    I actually think student loans can be a good idea. All of mine were zero-interest to me because they were subsidized by the government. This allowed me to get a better paying job sooner and not spend every waking moment working or in class while I was in college. To each his own though.

  25. posted by Fred E. on

    I just want to point out that canceling a credit card make change a current credit score but that it does not remove it from your credit history. There are still credit cards on my credit history from thirty years ago, showing the dates they were open and that they were in good standing.

    Having too many credit cards open can hurt your credit, too, even if they have a zero balance. Look at it from the perspective of bank: they could give you a loan and the very next day you could go out and max out all of those credit cards.

    So in dealing with credit cards, it is best to be moderate rather than at either extreme.

    Bottom line though, you should pay off those balances and get rid of those credit cards. Your credit score will rebound from any temporary hit if you keep a couple of major credit cards and use them responsibly and pay all your bills on time.

  26. posted by auntie on

    what’s the difference between a credit card and a charge card??

  27. Profile photo of

    posted by themusiclivez on

    I don’t know about all of the US states, but as an insurance agent in NY and CT credit scores DEFINITELY matter when purchasing insurance. Your insurance premium can double if you don’t have good credit or any credit at all. (I know this from quoting policies first hand).

    On a different note – I completely agree with the points made in this article!

  28. posted by Dane on

    Excellent advice. The country would be a lot better off if more people handled their finances this way. And, they’d be better about voting for like-minded folks…

    auntie – a charge card is a debit card. The money comes straight out of your account.

  29. posted by Erika on

    Saving 50 percent of one’s income is truly absurd. Anyone who’s interested in personal finance should check out getrichslowly.org/blog. Don’t look here for investment or financial advice.

  30. posted by momofthree on

    um–I am too curious about your “no student loans”.

    No offense, but how the heck is a low to middle class family supposed to pay for children to attend an institution of higher learning when scholarships, grants, and financial aid don’t meet the total cost?

    There are no rich uncles on my family tree, no hidden funds tucked under grandma’s mattress, or trees full of cash in my yard.

    Loans, yea, we hate them, but if we didn’t one, there was no way my oldest was going to be able to go to the school of her choice. We will probably be “in hock” for many years, since we have three kids that all want a college education.

    ps. I am in the midst of a job hunt. Ain’t easy in this crappy economy.

  31. posted by TanyaZ on

    Actually, for uncluttering purposes, I like not using credit cards at all. Even though we have been paying our cards off in full every month for years, I found that once credit card usage dwindled to 4-5 times a year, I started to forget to pay them. Have not been late yet due to electronic payment technologies, but have paid in the last day a couple of times just because I simply forgot about the stupid $50 that was charged a month ago. So, now I actually had to switch to paper statements to ensure I get reminded when the bill is due. Debit cards are the ultimate unclutterers. I even get points on mine!

  32. Profile photo of Erin Doland

    posted by Erin Doland on

    @Erika — Actually, it’s not absurd to save 50 percent of your income. Think of it this way … Random guy takes out a loan for five years to pay for a new car. This car payment (which is the cost of the car and loan interest) is X amount of a his take-home pay. So, instead of having our fake random guy take on the debt and buy something he can’t afford on credit, let’s say that he instead saves up the money to buy the car first. It will take him less than five years to save up the cash, his X in savings won’t include loan interest, and he won’t ever have to worry about not making a car payment if he loses his job or another emergency arises. Saving for large purchases instead of buying things on credit beyond your means is not absurd — it’s smart consumerism.

  33. posted by Christine Simiriglia on

    I was $35,000 in debt on credit cards through my 20’s… add to that student loans, nothing saved and a life lived frivolously and you have disaster.

    I’ve since wised up. I’m 45… student loans are paid off. Debt is down to almost nothing. Three months operating saved. I own a home. Retirement accounts are almost where they should be.

    A lot due to the invention of the debit/VISA. it taught me how to live on cash with the convenience of a credit card. Now I use it for everything. I’ve kept my cards open, but unused.

    Credit is EVIL.

  34. Profile photo of Erin Doland

    posted by Erin Doland on

    @momofthree — I’m going to upset a lot of people with this … but here goes … I don’t believe it’s a parent’s responsibility to pay for her child’s college education. Paying for a child’s college education is a luxury, not a birthright. My parents didn’t pay for my undergraduate or graduate educations. The word around the house growing up was that if we wanted to go to college we had to find a way to make it happen for ourselves. So, I worked and saved and worked some more. And, I went to a state school, earned a few small scholarships (less than 1/4 of my expenses), and paid the rest on my own — tuition, books, food, housing. A couple semesters my parents helped me with books as Christmas presents or birthday presents … but those were always unexpected gifts. I lived with roommates in student apartments and always held a job (or three) each semester. This is also how most of my friends experienced college, too. It wasn’t until I moved to D.C. that I met people whose parents had paid for their educations. And, you know what, lucky for them! It’s great that their parents could afford such a luxurious gift for their children. But, it’s not how I did it and I think it’s unrealistic for people to think that is the only way a person can go to college.

    Also, just because I got into some really great private schools, doesn’t mean I went to them. I got an $11,000 scholarship to my top choice school, but its tuition was $21,000 a year (not including books, housing, food). So, I didn’t go there. I went to the school I could afford.

    Thankfully, though, most education loans carry low interest and are easy to pay back in a short amount of time. So, I understand why people do it … but it’s not the only way to go to college, and it wasn’t for me. I left college debt free and started saving money on my very first paycheck after graduation.

  35. posted by All Card Offers » Ask Unclutterer: Credit card clutter | Unclutterer on

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  36. posted by Beth on

    A couple of points I didn’t see in any of the other posts…

    Most credit cards come with a service that will fight for you if you have a dispute with a merchant. Several years ago, I paid for scuba lessons and then decided to cancel. The business refused to honor their own cancellation policy, so I sent the details to my credit card company. They immediately credited the disputed amount to my card and then they took care of all of the wrangling with the business. No stress! Only enough time to write one letter to the cc company.

    Charge cards do not typically offer this service. That said… I do not currently have any credit cards myself. I got rid of them all a couple of years ago, and it works better for me and my husband. We were impulse spenders which affected both our finances and our clutter. So I put some obstacles in the way of our spending.

    I have multiple savings accounts, similar to what Erin described and a checking account which is used for the sole purpose of paying bills.

    I have an ATM card which is tied to only one of the savings accounts and not at all to the checking account. So I can shift money around from a computer, but not from an ATM.

    I have a prepaid credit-card on which I put some money every couple of weeks. This is used for Netflix, my husband’s internet purchases, and as an emergency fund for my husband. (He does not have access to my bank accounts.)

    Each week, I withdraw a set amount of cash for each of us to use for our daily purchases. Anything that we buy in a physical store is paid for with cash. Once the cash is gone, we’re done for the week.

    We’ve been doing this for almost a year now. (We’ve been married for over 10 years…) I can’t describe the relief of finally finding a system that worked for us!

    I realize this is somewhat off-topic, but when you spoke about un-cluttering your mind, I immediately thought of this.

  37. posted by Lisa on

    My parents loaned me what they could for my education, and I paid them back. They took out a second mortgage on their home, so they did pay the interest for the term. The agreement was that I would pay them the same amount that I’d paid for the gov-sponsored student loans, so I just switched over payees for the same amount. (actually, I increased it as my salary went up, by percentage, and all bonuses went to loan payments.)

    I am positive, being the oldest of 4 children (all one year apart), that I could never have gotten an undergrad education without taking a loan. I understand that you personally have a different situation, but there is a bigger audience to your blog that you might want to address in a more proactive light.

  38. posted by Mike on

    @Dane – Your answer to @auntie was not correct.

    A charge card, generally American Express, is a card-based account that must be paid in full every month. This is different from a credit card, which allows you to carry a balance by paying interest on it.

    AmEx does offer credit cards, but their primary and best-known product is the AmEx charge card (in its various types). In fact, that’s essentially the only reason most people would ever get an AmEx, is to use it in that manner. And because Costco only takes AmEx or debit cards; when you absolutely need a ten-gallon drum of mustard, Visa is NOT everywhere you want to be.

  39. posted by Just Breathe on

    I think, perhaps, you have opened Pandora’s Box with this post, Erin.

    Even though most of your commenters probably have above average incomes, without intending to, you have come off as somewhat elitist, talking about saving $5,000 here and $500,000 there. For many people, it might as well be $5,000,000, as those figures are not reality for them.

    With so many in this country suffering financially from savings losses, job losses, and living on a shoestring, I think you would be better served helping your readers get decluttered and organized as inexpensively as possible.

  40. posted by Just Breathe on

    I forgot to add that even retail clerks and managers have credit checks run – and have for many years.

    Employers don’t want to take the chance of hiring someone who is having financial problems, as they feel they would be a theft or loss risk.

    I would also hate to see any readers rush out and cancel their credit cards.

    When you read advice, make note of the person’s credentials. I would never hire an interior designer or Academy Award winning actor to do my taxes…

  41. posted by Amanda Gordon on

    I think some of us have gotten away from the topic of credit card clutter and I’m continuing it, pardon me.

    I agree with Erin on two points 1) Saving 50% of your income is not absurd. I do it, and am able to pay for my monthly expenses which include a mortgage. 2) I also agree that it’s not a parent’s responsibility for a child’s education, both of parent’s has masters degrees and each paid their way through college. It’s your education thus you foot the bill. This is also my opinion on wedding, your matrimony, your bill.

    I do agree with other posters that a credit report can be looked at for things other than obtaining credit. I would hope that those entities are looking at your payment pattern and not just a number.

  42. posted by Joy on

    Thanks for all the good info, Erin! Two thumbs up!

  43. posted by Melanie on

    When I read this I knew it would touch a nerve. In America we are so accustomed to certain “rules”
    1. Spend more than you make, as long as you have the stuff you “need”
    2. Someone else owes you a college education.
    3. You can afford a car if you can make minimum payments on a loan, not if you can actually buy the car.

    People are freaking out because Erin hit a nerve, although she clearly pointed out that it was how she chose to live, not how they should. Think about why it caused such a defensive reaction.

  44. posted by rhett on

    as a recent debt free club member and graaduate of dave ramsey’s financial peace – i’d have to agree with erin, get rid of the cards and absolutely cancel them. if you have cash – there’s no need for a credit score – good or bad. we currently save half of our income and it feels great. it’s nice to know that we are putting away car payments before we need cars, gift savings for the year before november and the christmas buying begins and emergencies are being planned for.

    if you ding your score canceling cards – consider it a battle scar and wear it with pride b/c if you really unclutter and start living financially uncluttered as well – it won’t matter. people are not really going to deny you for doing what’s right. let’s face it… the system was built and is maintained BY THE BANKS who make money the more they penalize you for not using their cards and services… that is insanity.

    anyway – i enjoy my canceled credit card life, my debt freedom and my savings accounts growing at a rapid rate… but that’s just me.

  45. posted by joss on

    Agree with melanie. We did finance a car years ago when the economy wasn’t digesting itself because slowly paying 0% on the amount over 5 years while the money sat elsewhere earning more money (it seems like you couldn’t swing a stick back then and not hit any number of banks offering good rates on CDs) made the most sense. Not the case anymore. Sigh.

  46. posted by Jenny on

    Erin — I really like what you have to say here, and I would love to work towards saving 50% of my income. I have no debt outside of my mortgage, and save about 20% of my income (sometimes more — I work on commission so my income varies — this year, not so much :-(), but I would most likely take a loan out to buy a car to avoid depleting my savings. I am curious as to where your retirement savings comes in — is that part of the 50% or on top of?

  47. posted by Jack on

    “I don’t believe it’s a parent’s responsibility to pay for her child’s college education. Paying for a child’s college education is a luxury, not a birthright. My parents didn’t pay for my undergraduate or graduate educations.”

    Erin, do you know how hard it is for students to get a loan above the basic Stafford loan these days? The situation has grossly shifted in the last ten and twenty years. The maximum loan a freshman can get for an academic year is $5500. If you’re low income, you might get double that in grants, but only if the math is in your favor. That’s not going to get a kid through freshman tuition and mandatory room and board charges at a lot of major universities Unless you think everyone should go to community college and only kids with trust funds or people who’ve already been working ten years should go to medical school, loans are sometimes a necessity.

  48. posted by brokensaint on

    I guess I’m a little turned off by both the save half a million dollars and no student loans.

    My parents didn’t help me pay for college, I worked *every* quarter and during summers, and I would never have gotten an education without loans. Never.

    Also, saving half a million dollars? Wow. Most of us are lucky if we have jobs right now!

  49. posted by b on

    Recently I was comparing my current insurance coverage with a previous carrier, the first thing they did was check my credit. Which was excellent. Potential landlords and employers, too. I agree consumer debt is burden, especially with no continuing income and limited savings. Car payment and car insurance can cost over $500
    a month. Manageable or low consumer credit of course is best. Good post, Erin. Happy Valentine’s Day.

  50. posted by GG Allin on

    This is one of the most unrealistic responses I have ever seen on this site. Though the author may be able to save insane amounts of money, the VAST majority of us cannot.

    To answer the reader’s question directly, most credit cards allow you to receive online/electronic statements. I download those and save them to my hard drive.

  51. posted by Maryann on

    A good credit score is also essential if you are intending to start your own business. My partner & I have had many doors opened to us that would have been otherwise closed if we has less than excellent credit. From bank lines of credit to required bonds to our office lease. Please reconsider your recommendations…

  52. posted by Jenny on

    @Jack I graduated college not quite 8 years ago, with no loans. While I did have some help, I decided not to go to the Ivy league school I got into, and went to a great state school instead and graduated with no debt. I worked full time, went to school in summers, and graduated in 3.5 years to save on tuition. It’s possible. I graduated at 21, was able to start saving right away, and my (now) husband and I were able to buy a nice house when I was 24 without overextending ourselves (in the middle of the housing bubble) because we could put a 30k down payment and have a low rate fixed mortgage. We’re not perfect. Sometimes we spend too much, and we need to start getting serious about retirement funding, but I’m now going to grad school part time (with no loans).

  53. posted by Louise on

    I read both uncluttering and personal finance websites, and tend to think those two interests always overlap. It is fascinating to me to see, through these comments, how much they may not!

    For me, personally, the two concepts are closely linked: uncluttering leads to a re-assessment of how much stuff I need, needing less stuff leads to buying less and getting rid of more, buying less leads to thinking harder about money and debt, wanting less debt completes the circle of buying less/having less/cluttering less.

    The statement that everything is too expensive, that no one can save if they live in city X or go to college Y or work in field Z is an indication of where the speaker stands in this cycle. Not good or bad, just where they are right now.

  54. posted by EmmBee on

    I don’t see the point in saving statements. I can understand keeping them if you run a business, claim itemized deductions, or have to prove purchases for a corporate expense account, but for me saving them is just clutter.

    All my accounts are paperless. I don’t have to worry about someone getting access to the account by stealing my mail. I get an e-mail reminder to check the online statement and to pay anything owed. As long as I’ve verified all the charges were authorized by me and pay it off, I don’t see why I would want to hang onto the statement. The card company has to keep them (though I’m not sure how long), so if I were really in need of one, I could probably get it from them.

    I will note it is important to make sure you authorized the charges. I’ve had a few where I had to call a company for a reversal of something I forgot they were going to automatically renew, like a magazine subscription I no longer wanted.

  55. posted by Rosa on

    Half a million is a little much for the emergency fund (for us, one year’s expenses is about $50K and that’s our emergency fund goal – we’ll be there in about 2 more years).

    But it’s not a ridiculous amount to save up overall. My mom is a public schoolteacher, not a rich person, and her retirement savings was double that, after a 40 year career.

  56. posted by Tracy on

    Some people have said they couldn’t have gone to college without loans. Yes, you could. Erin chose a less expensive college. Her choice– doesn’t have to be yours. She chose to take longer to graduate so she could work and earn tuition. Her choice– doesn’t have to be yours.

    Do I want my daughter to have a college education? Yes I do. Do I think I am obligated to pay for it? No I don’t. Will I help her as much as I can? Yes I will. But sorry, Harvard is not in our budget. Hubby and I both went to state universities and we’ve had great careers.

    Everyone has to make their own choices.

    In the meantime, we are teaching her that our family lives on cash, not credit. She understands that if you want something, you save up for it. Extra work never hurt anyone. If we teach her these things, it’s worth more than paying for her tuition.

  57. posted by TanyaZ on

    I just ran the numbers for our household, and depending on how you count, we save 33% to 37% of what we make after taxes, so 50% is definitely is not out of reach. We are not uber-savers, but we do save money for vacations, medical, car expenses in separate savings accounts, I just never considered them “savings” because they eventually are spent. By that token, I have a clothes/home savings account and a property tax savings account – those are not true savings and were not included in the percentages. So, depending on how you count (are Roth IRAs in our out?), 50% is not that riculous.

    Now, regarding half a million. In principle, I like that number. It would be nice to have by retirement for unexpected expenses and maybe some luxuries, like travel. Our current goal, however, is 100K of free cash in taxable (non-retirement) accounts. Once we get there, we can set our eyes on half a million.

    P.S. My parents could not pay for my education, but I will open a college savings account as soon as we have a child. My children will have it drilled from early childhood that they need to get scholarships to go to college. Ultimately, at 18 “kids” are no longer kids and smart enough to make their own financial decisions, so they will have to decide for themselves what they do.

  58. posted by Sandra on

    For anyone who has half a million or anywhere even close to put in savings, I’d suggest:
    1. Make sure you’re putting the maximum deductible amount into tax-deferred retirement plans so you can save a bundle in taxes.
    2. Make sure you don’t have more in one bank account than what the FDIC covers.
    3. You can probably be a LITTLE less cautious and put some money into stuff like CD’s that’s save but matures at different times and gives you a little more interest.
    4. You’re probably not giving enough to charity!

    Erin, you’re usually very sensible, but thinking it would make sense to put this much money in emergency savings is a little overconservative, perhaps.

  59. posted by Becca on

    1. What if I need to purchase a car, because I don’t have one or mine was totaled and I don’t have the luxury of having 5 years to save for a car? What if I need to get to work?

    2. Every job I’ve had since I graduated from university was due to the connections I made there. My career would not have been successful without those connections and jobs – guaranteed. I wouldn’t have been able to go to that school without taking out loans. Suggesting student loans are bad is impractical and quite frankly, classist. Without loans, a lot of smart kids are relegated to state schools and community colleges. Sure, in certain careers, that may be fine and the kids can overcome the difference in education, but that’s not true in all careers.

    3. All of these ideas in this blog are “nice” and make “sense” but they just don’t work for most people living in the real world with actual expenses. With the apartment market where I live, if I put 50% of my paycheck in savings, I could pay my rent and my utilities and then I’d starve for the month.

  60. posted by Dawn F. on

    Maybe our country’s government should follow some of this great advice and perhaps our economy would be much more stable!

    The average American doesn’t seem well-equipped at all to handle their finances (living an over-spending, under-saving mentality and teaching those lessons to their children) and neither does our government! Ugh.

    This was a great post and I enjoyed reading all of the comments. If people would use basic common sense I think their financial picture would look much healthier.

  61. posted by brokensaint on

    I *chose* a less expensive college because I didn’t want to take too many loans. As an 18-year old non-college graduate, I couldn’t make enough money to support myself and go to school – even at a community college.

    I have to say that it’s kind of irritating me that people are telling me I could have done differently and better without knowing the first thing about my situation. I had already settled on colleges from the ones I wanted to go to. I got scholarships. I worked. No, I still couldn’t have done it without loans.

    And yes, if I put 50% of my paycheck in savings, I would not be able to eat.

  62. posted by Philip in the UK on

    Another somewhat off-topic post (i.e. not to do with tidying up) but I think relevant in the context of many of the posts.

    Whilst I agree in principle with buying things with ‘owned income’ rather than by credit card, there is one major advantage – at least in the UK – of paying by credit card for some things. Under UK law the credit card provider is ‘jointly and severally liable’ for any purchases between about $150 and $45,000. This means that if your supplier goes bust or what you buy doesn’t work, or breaks down unreasonably, your card provider must pay up even if the supplier can’t or won’t. The same does NOT apply to debit cards.

    As I say, if this isn’t the case in the US then my apologies – please ignore. But if the same protection is available in the US then it is a very valuable benefit of a credit card. Just make sure you pay the balance off every month. Automatic Direct Debit works just fine!

  63. posted by Denise on

    I just purchased your book with my credit card, Erin, a debt I will handle with complete responsibility! Thank you.

  64. posted by Jay on

    A couple of thoughts:

    – A credit card is the same as a charge card if you pay the bill in full each month.

    – In an emergency, a credit card (with the credit feature) may be invaluable. During the recent DC snows, a tree fell in our street, and our power went out. We (my wife, 6 year old, 2 year old, and I) had no heat and had to go to a hotel. Our car got stuck in the snow, and the trip to the hotel 3 miles away took 3 hours. Since the county delayed plowing our street, we were unable to drive back into the neighborhood for a week. We paid for the hotel with a credit card.

  65. posted by Kelly on

    Our extremely varied income makes an inherently cluttered financial system that requires extreme organizational skills (that I haven’t mastered yet!) to plan a monthly budget. I’d love to hear from some others who have variable incomes each month and year…how do you decide how much and when to make savings deposits? I’ve found automatic ones hard because our account balances can dip really low at certain points, making them more worrisome (what if there’s not enough on the single day the auto draft is made?). But having to make the deposits myself unscheduled is also a lot of mind clutter and requires firm self-control.

    Because it is going to take us a long time to build savings on a pretty meager income that varies so much, we have found having a credit card to be freeing to our minds during several job changes (thank you, economy), coming out of school transitions, and seasonal challenges (I make the least income during the winter months when our bills are always highest – e.g., electric heat, missed days due to illness for part-time worker with no sick leave, doctor bills). We can always pay them off in the summer when income increases and the few dollars in interest I pay for 6 months is more than worth the peace of mind.

    Hopefully some day we’ll have bigger savings to serve this purpose, but we’re in the budding stages of our careers with a young family and we want to enjoy this precious time with our little ones rather than work it all away.

  66. posted by Praveen on

    What about zero percent loans? I have the cash, but I want to avail interest-free options on household items like appliances, electronics etc. I invest the cash elsewhere.

  67. posted by Christie on

    Erin, thank you for quoting Dave Ramsey! We are very close to being debt free (except for our mortgage) thanks to him. As soon as we are debt free, then all of that extra money will be going into savings/money market accounts for our 6-9months of emergency funds.

    @Praveen… zero percent is nice, until you loose your job, deplete those savings, and have to pay back interest on the loans because you didn’t pay it off within the time period. If you have the money, just pay for it. Think of the time you will save not having to think about paying it off by December 31st 2012!

    I recommend reading Dave Ramsey’s “The Total Money Makeover” or listening to his talk radio show. He gives great advice that makes a difference in your future, as well as your family’s future!

  68. posted by Alix on

    $500,000 in emergency expenses? Paying for a car outright? I’m all for saving/spending wisely, but you gotta be kidding me.

  69. posted by rhett on

    @praveen – also – a 0% loan means they’re charging you more up front to make up for the no interest part of the deal. offer cash – for less than they’re asking and pay for it all at once.

  70. posted by Praveen on

    @Rhett. This was an offer from Bestbuy. I was buying a W/D set and a few other appliances last year for our home. There was no separate cash-only offer from BestBuy, just the sticker price. I used the 5 grand to pay off part of my mortgage.

    @Christie, I have an auto-debit setup for 36 months (for $50/month) that gets deducted every month from my account. This is actually very interesting. I did lose my job last year. I had around 10 grand in my savings account of which we used almost 6Gs until I found a job. Had I bought the appliances by paying the full amount, I would have gone belly up sooner or would have ended up selling some of my stocks (which doubled since then).

    It’s all good under you know what you’re getting into and you don’t go overboard.

  71. Profile photo of

    posted by Sheryl on

    @ Alix – “Paying for a car outright? I’m all for saving/spending wisely, but you gotta be kidding me.”

    Not kidding at all – We paid $4000.00 cash for a good, reliable older car (a 1999 Toyota Corolla) a couple of years ago for my husband, and it’s still running great, with no problems.

    Insurance is cheaper too, because we don’t have to carry full coverage, and it’s good on gas. I have a 2001 Toyoto Echo that’s also paid for and very good on gas.

    I think the problem is that with all of these leases, people have been led to think that they need a new car with all the bells and whistles every three years. We drive our cars until they die.

    I agree with everybody that recommended Dave Ramsey’s “The Total Money Makeover” – it’s not the message that we’re used to hearing about handling your personal finances (it’s not even a message that many people WANT to hear, based on some of the comments here), but it’s a message that can give you a lot of peace of mind if you’re willing to embrace and implement it.

    As I said in the very first comment, my husband’s been laid off most of the time since April of 2006, and if we had been in debt, it would have made things very difficult indeed. As it is, adjusting to living on an income that was cut by about 2/3’s hasn’t been as bad as you would think.

    We live simply, pay cash for everything, I cook at home, buy at thrift stores and don’t think we need to have “the latest and greatest” of everything. In the end, it’s a CHOICE – you CAN live, and live well, without consumer debt.

    @ Becca – “Suggesting student loans are bad is impractical and quite frankly, classist. Without loans, a lot of smart kids are relegated to state schools and community colleges. Sure, in certain careers, that may be fine and the kids can overcome the difference in education, but that’s not true in all careers.”

    Frankly, I think your comment is pretty classist.

    To imply that state schools or community colleges are “bottom of the barrel choices” for smart kids (meaning the only kids who willingly go there are “less than smart”??), or that you can’t get a good education at these schools, is just wrong-headed and somewhat offensive.

    Especially in this economy, IMO it’s just not a good idea for a young person to saddle themselves with 10’s of thousands of dollars in debt when they aren’t guaranteed a job when they graduate that would enable them to pay it off.

    Get whatever jobs you can (bag groceries, flip burgers…) pay-as-you-go at the local community college if you have to, take longer to get your degree, and be willing to live on less. It will be far better than starting your adult life by having to declare bankruptcy because you don’t have a job to pay off that loan.

    Or consider a line of work that doesn’t require a degree. Now THERE’s a thought, huh? ;-)

  72. Profile photo of

    posted by Sheryl on

    “It will be far better than starting your adult life by having to declare bankruptcy because you don’t have a job to pay off that loan.”

    Maybe I should re-word that – It would be far better than starting your adult life by defaulting on a loan because you can’t find a job that will enable you to pay it off.

  73. Profile photo of

    posted by Sheryl on

    Oh sorry…I already said that…

  74. Profile photo of

    posted by Laetitia in Australia on

    Fortunately (for me) the Australian economy isn’t tanking the way the US one is. Part of this is because we have tighter banking regulations. I’m doing a Diploma of Accounting through the Aus equivalent of a “community college” so I was learning about this a year ago – very topical.

    Years ago we were applying for a mortgage and the one credit card we (I) had counted against us as it was deemed that I had the ability to rack up a big debt on a cc. From that I learnt NEVER accept an increase in your cc limit offered by the bank. For the record, I had never maxed out that card at any time.

    I no longer have the cc, which could make it interesting if I ever have to hire a car as the Australian hire car companies only take cc. This is so they can charge you extra for things such as the insurance if you damage the car or you don’t refill the petrol tank before you return it.

    As for emergency fund amounts, I’d recommend the equivalent of at least 3 months worth of expenses. Of course, you may want to aim for more or less depending on in what industry you work and the condition of your local economy. The idea is that you aim for an amount that, in the event of an unexpected job loss, will allow you to still pay your expenses until you can find another job.

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