Do I Have to Close My Credit Cards When I Enroll?
Understanding the tradeoff in enrolling a debt management program.
Laura from Independence, Kentucky asks if she has to close all her credit cards if she joins the program or if they stay open.
You have to close all of the cards you put on the program. Creditors don’t want you to use the cards when you’re having a benefit from a debt management program. But if there’s a card that you can keep out of the program, you can do that. You can keep the card out and use it for emergencies.
An expert answer from April Lewis-Parks
As April mentions in the video, there is a tradeoff for the benefits you receive by enrolling in a debt management program. By giving you the ability to enroll in the program, your creditors are agreeing to take lower monthly payments at a reduced interest rate. In exchange, they don’t want you to continue using those cards and running up more debt while you’re enrolled.
Instead, once you enroll in a debt management program you’ll work with your credit counselor to craft a workable household budget that you can follow to live a credit-free lifestyle. The goal of budgeting is to be able to afford all of your monthly expenses on the income you earn without having to rely on credit cards to cover any shortfalls. So once you balance your budget with your credit counselor, you should be able to live comfortably even without using your credit cards.
On the other hand, even creditors understand that emergencies happen. Ideally, your new budget should have enough room in it that you can start saving so you can establish an emergency savings fund. This can then be used to cover any emergencies or unexpected expenses that come up and fall outside the budget you create.
However, if you’re nervous about going completely cold-turkey from using credit, you can keep a credit card out of the program to use in case of emergencies. If you decide to add that credit card into the program later, that’s allowable too. Just keep in mind that your goal when you’re using a debt management program is to get out of debt, so putting things on plastic should be avoided except in emergency situations.