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Cutting Credit Cards with Care

While I am no Marie Kondo, I sometimes feel the need to straighten out the clutter on my desk. I definitely operate more efficiently when my office is neater.

Having less clutter in your financial life can be useful as well. Multiple bank accounts, brokerage accounts, and credit cards can accumulate over time for no particular reason. This collection of accounts often serves no purpose other than to create paperwork and confusion.

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Numerous investment accounts, for example, hinder your ability to create and monitor portfolios that meet your needs. Even as a professional with robust tools at my disposal, I always recommend consolidating accounts whenever possible. Simplicity and transparency lead to clarity.

It's also easy to acquire too many credit cards. If you are not careful, they can lead to high interest costs on outstanding balances. Closing extraneous credit cards can be advantageous, but there are some pitfalls to avoid along the way. I recommend clicking the following link for a great online article by Intuit to find out the pros and cons of taking this step.

One issue worth highlighting is the potential negative impact on your credit score when cancelling credit cards. The consequences are unique to each individual, but closing a card can lower your "credit utilization ratio" and, possibly, your credit score.

A recent article by Schwab explains it as follows: "For instance, say you have $50,000 in available credit. If your credit balance were $10,000, your credit utilization rate would be 20 percent. If you were to eliminate a card or two, bringing your available credit down to $25,000, your ratio jumps to 40 percent. And while there's no precise cutoff, in general it's a good idea to keep your ratio below 30 percent. A higher ratio can result in a lower credit score."

A thoughtful approach to your finances usually beats a haphazard one that evolves due to inertia.

Words of Wisdom

If you think nobody cares if you're alive, try missing a couple of car payments. -- Earl Wilson