Did you receive letters in the mail from credit card issuers canceling your dormant credit cards, reducing the credit limit or increasing the interest rate? If you did, you're not alone. Many folks received such letters. In my case, Bank of America summarily canceled my dormant AAA credit card, which I haven't used since they took over the MBNA, without informing me. I only found out when I did my routine login of the account (I do this to ensure no charges are posted) and discovered that I couldn't log in. Upon enquiring, I found out that the account was closed for inactivity. American Express sent me a letter raising my APR from a fixed rate to a higher floating rate and Citibank cut my credit limit by 20% on the basis that I only utilize a small percentage of my credit limit.
So what should you do? The New York Times columnist, Ron Lieber discusses the various options that you have in his recent article,
Maybe It's Time To Change Credit Cards. You might find useful advice and tips that you could use. As for me, I will continue doing what I've always been doing, paying my balance in full every month and keeping an emergency fund fully funded (it is presently funded at 9-months salary replacement, my target is 12 months) and not using credit cards as an emergency fund.
I have discussed my views on credit card in two earlier blog postings:
Credit Cards & Frugal Living and
Careful Use of Credit Cards (My Frugal Living Tip #2). At the end of the day,
credit cards cannot replace personal savings that you accummulate through disciplined monthly saving. For me, credit cards function best as a float, allowing you to earn interest on money you have to pay your credit card bills in full in a high-yield online savings account. That's the only way for credit cards to work to your advantage. Carrying a balance at high interest rates will turn into a burden that would take years to overcome.
For further reading:
More New York Times' articles on credit and debit cards.
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