Debt Relief Advice: Why You Should Leave at Least One Line of Credit Open

credit card in someone’s hand

Depending on how much debt you are in, it can be very tempting to just call it quits and close out every line of credit you have, especially after receiving a debt settlement. After all, the best way to get out of debt is to cut it off at the source, right? Well, not exactly. The source of your debt may not be your credit card or other debit accounts, it could be your budgeting habits and your finance management knowledge.

The best debt relief advice that anyone could give in this kind of situation is to always leave at least one line of credit open. Not having credit is just as bad, if not worse, than just having a low credit score. In fact, if you go from having bad credit to getting rid of your credit altogether, it is very unlikely that lenders will want to work with you in the future. This could make simple investments, like getting a home or car, extremely complicated and nearly impossible to come by.

Increase Your Credit Score

Your credit score is what is ultimately going to decide your financial future, which is why any reliable debt relief professional will tell you to simply keep one account with little to no annual fee and a low percentage rate, and keep it open for as long as possible. Your FICO credit score includes information on all of your financial accounts, whether they are closed or open. If you close every single credit card you own, you will essentially be putting a halt to your credit utilization — how you use the money your lended — and ending the lifetime of your credit history. Lenders want to know that you can be fiscally responsible for long periods of time, not that you can make short-term efforts.

Have an Emergency Fund

While your credit score is crucial to your success financially, it is also better to leave a credit card open because it creates a safety net for you and your family. Even if you are able to get yourself out of a high debt situation, it only takes one home accident or unexpected illness or injury to set you back and put you in more debt. There are thousands of cases of people who suddenly lost their homes or became homeless because of an incident that left them unable to pay their bills. Having a credit card available will make sure that such a case does not happen.

Those who are heading back to school can also make use of an emergency credit card, regardless of their age. Between textbooks, meal plans, schools supplies, class projects, and commuting to and from school, higher education can create a burden with a heavy price tag. Parents who decide to go back to school know this all too well. You can use your credit card to make sure that you can afford to keep up with the academic pace. As long as you pay off your balance as often as possible and avoid late payments, you will be able to stay out of debt and stay in line to graduate.

Better Your Financial Literacy

No debt relief advice would be complete without recommending that you better your financial literacy. At the end of the day, you can follow every rule and take every suggestion, but if you do not understand how to get ahold of your finances on your own, you will always end up in the same position as where you started. By keeping a credit card line open, you can set yourself up with a budget and work on keeping yourself on target every month.

For example, let’s say you have one credit card line and your other bills will include rent, utilities, food, car insurance, gas, and, of course, a ‘fun’ fund for leisure activities. After you calculate your monthly income, write down how much absolutely needs to go towards these things. Then decide which of those things you can pay with your credit card. Whatever you pay with your card throughout the month, pay it off by the statement due date and you will not only build your credit score but develop positive lifelong spending habits.

Trust Yourself and Invest in Your Future

The key to staying out of debt is to trust your ability to do so. By keeping a line of credit open, you are bettering yourself, your financial situation, and your future because having a credit card is the best way to build your credit score and develop healthy spending habits. Liberty Debt Relief can help you narrow down which of your credit cards is the one to keep and help you come up with a plan to better manage your finances today.

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