The scary step of cancelling my only credit card

Hi everybody,

I'm debt free and I've successfully avoided using my only remaining credit card for over a year now. Its balance has been sitting at zero since March 2019. Because of that I've been really tempted to just cancel it. All it has been doing since then is accrue an annual charge that I could have budgeted otherwise.

The hard part is that it really freakin' scares me to cancel it. What if I suddenly need it? What if my budget contains a glaring hole for the past year that I've just not realized and I'll be in deep trouble?

I am fairly confident that I should have everything I need to cancel the card: A MasterCard debit card that works anywhere a credit card would. Enough funding in my long term categories for almost a year. As a result of that enough money in my checking account to fund the debit card. Parents and friends who could help me out in a pickle, and with all probability the eligibility for a one-off loan if ever needed.

So why is this so hard for me? Should I jump into the cold lake of cancelling my last credit card?

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  • Have you thought of getting in the habit of just using it for budgeted purchases?

    Like 3
      • Peter
      • Professional Designer, Web Developer
      • lasty
      • 2 mths ago
      • Reported - view

      nolesrule There are a few reasons I prefer using the debit card over the credit card:

      The debit card immediately charges the checking account I use (within seconds) and I get a push message from my checking when ever the balance changes, so paying with the debit card is almost as painful as paying cash -> incentive to watch my spending more.

      The credit card is also hard tied to a checking account I no longer use and which is just still active so I can get a large refund I've applied for last year with that account number, and which will be transferred to that checking account some time in fall. It currently only has enough money in it to cover the annula fees. I can't easily change the account number for the refund after the fact.

      The credit card doesn't have contactless payment capabilities and I can't use it with Apple Pay, which makes using it a royal pain compared to my debit card. I know, I'm spoiled.

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      • TechieM2
      • IT Professional and General Geek
      • techiem2
      • 2 mths ago
      • 8
      • Reported - view

      Peter That instant benefit of using a debit card is also the main reason not to use one - if it gets compromised, your checking account gets drained immediately and you have to work through the bank process to get the funds back (taking who knows how long), rather than just filing a fraud report with a credit card and them cancelling the transaction.

      Like 8
      • Peter
      • Professional Designer, Web Developer
      • lasty
      • 2 mths ago
      • 2
      • Reported - view

      TechieM2 That's a fair point. I've thought of that: My checking account is split into sub-accounts. They're arbitrary, I can transfer money between them instantly, I can close and open them with a few taps in the app of my bank, and I use them to only ever keep 200 bucks in the account tied to my card. Since the accounts also can't be overdrafted I don't see much risk even if my card got compromised (the card also has a constantly changing security code only visible in the bank's app)

      I still treat it like one checking account in my budget as my bank shows me the sum and a list of all transactions across all of the sub-accounts if I want. Super easy to budget with, flexible to fence off money. I absolutely love it

      Like 2
      • dakinemaui
      • dakinemaui
      • 2 mths ago
      • 1
      • Reported - view

      Peter Objectively speaking, it's still more work to manage that than to get a fee-less credit card. Again, 2-5% discount is reason enough on its own. Who doesn't like free money?

      Edit: although I don't know for certain that reward cards are available in Germany. Even without that, the CC is less to manage.

      Like 1
  • Are you in the US? If so my personal recommendation would be to cancel the existing credit card but to get a credit card with no annual fee (Capital One has many, the Citibank Double Cash has no annual fee, Chase Freedom or Freedom Unlimited, or Discover). Sure you have enough in your checking account to cover a big unexpected expense but if you have a credit card, you could actually keep less in checking and more in a savings account and earn more interest.

    I don't have to watch my spending if I follow my categories. If there is enough money in the Clothing category and I want to buy a pair of shoes, there is no reason not to buy the shoes. The way I allocate my funds to my categories reflects my values, so once I have done that, there is no guilt in spending.

    Like 3
      • Peter
      • Professional Designer, Web Developer
      • lasty
      • 2 mths ago
      • Reported - view

      jenmas Thank you. I'm in Germany. Savings interest rates are screwed over here, my new checking account brings me more interest than the savings account at my old bank. I really don't have a reason to have a separate savings account if it's only for the interest

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  • I would get a different card without an annual fee. Increased warranty, fraud protection, and 2-5% discount on spending are quite attractive.

    FYI, closing your existing account will lower your credit score, so make sure to get the new one first if you decide to go down this road.

    Like 3
    • I'm not in Germany, but right nextdoor in the Netherlands. And I haven't been able to find a creditcard without a fee yet 😕. Same for those nice cashback programs: not here, I believe....

      Creditscore might be used for some things that I am not aware of, but generally it is not a big thing here; nothing like it would influence my ability to get a loan or ... what is creditscore used for actually..?🙃

      Peter I've considered getting rid of my creditcard as well, but up till now have kept it because of a slight unease paying abroad would be harder. Not even sure that is true... And maybe because I got my first creditcard for the payage in France, when I went there all on my own (but with a toddler), while my french is very rudimentary. The whole package made me feel courageous/grown up/therś's not one good word for it. Anyway something I'm not ready to give up on apparently, because I still have the card 😄

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      • Peter
      • Professional Designer, Web Developer
      • lasty
      • 2 mths ago
      • Reported - view

      Powder Blue Pony Hello neighbor :) I've started using bunq a little over a year ago and their MasterCard debit cards work pretty much the same way a decent credit card would work as well, including abroad and on ATMs. So if you've by any chance taken a look at bunq and found it interesting I can recommend them. I've seen they offer a free switch service for the migration from other dutch banks.

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  • Just get a different card to keep around that doesn't have an annual fee.  We aren't anti-credit card around here, we are anti-debt, but credit cards are a useful method of paying for budgeted purchases.  I closed all my credit cards last summer when following Dave Ramsey's plan, but then I regretted it and have gotten new ones trying to build back my credit.  Turns out, now I can get 2% cash back everywhere, so I'm glad I upgraded my rewards, but I wish I hadn't closed my oldest accounts.

    Like 2
    • Peter
    • Professional Designer, Web Developer
    • lasty
    • 2 mths ago
    • 1
    • Reported - view

    Thank you all for your advice.  I forgot that in the US there's a lot more importance connected to owning a credit card.

    I'm realizing that in Europe we live in a different reality credit card wise and I should probably ask somewhere less US centric. Many people here don't own a credit card because they literally never need one, instead relying on less universal but long established card payment methods, cash and direct debits. Our credit scores care little about us owning one.

    Like 1
      • dakinemaui
      • dakinemaui
      • 2 mths ago
      • Reported - view

      Peter I can't imagine that Europeans don't care about discounts. Are rewards cards just not available to you?

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      • Peter
      • Professional Designer, Web Developer
      • lasty
      • 2 mths ago
      • Reported - view

      dakinemaui I've not seen a lot of cards offering rewards. There's also no guarantee that places will accept credit cards, like restaurants, smaller shops or certain chains. Quite a number of smaller restaurants, bakeries and shops won't even take anything but cash or cards only above a certain sum. Instead we have a big bonus point program that a lot of chains participate in where you have a card with a bar code and magstripe that gets scanned in addition to your payment and where it doesn't matter which way you paid.

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      • dakinemaui
      • dakinemaui
      • 2 mths ago
      • Reported - view

      After searching, they seem limited. Santander has one with 1% back on gas. I'm not sure about the warranty extension aspect.

      The main use case seems to be traveling elsewhere where one's bank-issued debit card is not accepted.

      Interesting.

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      • Peter
      • Professional Designer, Web Developer
      • lasty
      • 2 mths ago
      • Reported - view

      dakinemaui I've also just double checked my impression that there weren't many cards with bonus programs. I've used a big credit card comparison website and found four that are true credit cards with cash back or bonus points, the lowest annual fee was over 50€. If I include gas, travel or hotel bonusses (which I don't care about) another by BMW crops up with 1% on gas and a 20€ annual fee.

      I know there are a few that aren't in that search engine like the Amazon Visa card that offers 0.5% - 2% back in the shape of Amazon bonus points that can be redeemed for orders with Amazon. That also has an annual fee of 20€ though.

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      • dakinemaui
      • dakinemaui
      • 2 mths ago
      • Reported - view

      Peter Not sure if the Amazon Prime card is available to you. 5% back on Amazon purchases, no fee. Cannot use it elsewhere.

      Like
  • I would recommend you keep it.   Renting a car, hotel room, etc. can be difficult with a debit card, as some places require other items (copy of bills, etc.) before allowing you to do that (at least in the area of the US I am in). 

    Also, if the debit card gets hacked, that is your money that is gone.  When it's a CC, it's the CC companies money.

    If you are not using it, just keep it in a drawer or safe so you have it in the event you ever need it.

    If you have Costco's where you live, their rewards CC is awesome with cash back to the point that I use it for every purchase I make.

    I normally get between $600-800 back every year, so this also pays for my membership at Costco, as well as returning some cash.

    Like
  • I highly recommend getting another credit card before cancelling that one because you never know when a situation may come up when you absolutely need credit.  That said, there's no need to pay an annual fee.  I have a Bank of America Visa Cash Rewards Signature (red) card.  It pays 3% on gas, shopping or restaurants and has no fee whatsoever.  f you pay it off every month vigilantly, you can earn money and not pay interest.  Once you get a no-fee card, cancel the one the one you have.   You can't really build a strong FICO score with no credit cards.  

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  • Scythe said:
    Also, if the debit card gets hacked, that is your money that is gone.  When it's a CC, it's the CC companies money

     I may be wrong, but it's my understanding that Europe has much better rules for debit cards than we have here in America. I don't think that's really a concern for them. Personally, for those exact reasons, I would never use a debit card, but here in America the rules are different. 

    Like 2
    • Bruce While it's true we do have reasonable protection for debit cards, it can take a while to get your money back.

      Credit Cards seem to work a little quicker in that regard.

      Like 1
  • As said above, change it for a credit card with no annual fee. Some uses require a credit card (hotel deposits and car hire deposits are often not accepted on debit cards).

    Also, in some countries (I'm not sure about Germany, so can only speak for the UK) you can get additional protections on purchases made on a credit card. For instance, in the UK, if a purchase is for over £100 (even if you only put 1 penny of it on the credit card) Section 75 protection renders the credit card company jointly liable  for the whole amount (not just the amount put on the credit card) with the vendor if something goes wrong with the transaction (vendor goes out of business without delivering what you've bought, misrepresentation of goods by the vendor, breach of contract etc.)

    You don't have this section 75 protection with debit cards. 

    Like 1
    • Richard Holland I forgot to mention, though I think someone mentioned above, a rewards credit card is a great idea - YNAB will help with the discipline to ensure you pay it off in full every month - but if you put your monthly spending on the card you could earn money. (I have a Nectar Amex card - Nectar points are redeemable at Sainsbury's supermarket amongst other retailers, and for every £1 spent on the card I earn 2 points - 3 points if the spend is at sainsbury's), and 200 nectar points is worth at least £1.)

      Like
  • I agree these replies are very US centric. I would never have thought about owning a credit card in France, I don't think I would have had access to one actually.

    It might be necessary to have one if travelling but it depends where. When I lived in Japan my debit card worked better than some credit cards.

    Do you have any access to overdraft? That's what I would use in France if needed. It was free up to -700€, at least for me which was enough to cover reimbursements for example.

    Like 1
  • We started our consumer debt free journey in August 2013 and began closing many of our credit cards by 2015.  However with some uncertainty in doing so we did hold on to one for a full year before closing it in 2016.  Our reason for closing the final one was that we have not encountered a scenario since August 2013 where we actually needed a credit card.  We keep our emergency fund money in a money market fund with a different financial services institution for ACH transfers only.  We observed that any potentially fraudulent debit card transactions were denied by our our bank and they in turn asking for confirmation via text message and email.  We have travelled in the US using a debit card for airfare, hotel, and car rental with no issues.  For us are biggest driver was removing ourselves from becoming/remaining dependent on credit or any of those reward programs.

    Like 2
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