Keep options open with available credit

Dear Bruce: I have a good credit score, which I want to maintain. I have a couple of credit cards I never use, and I’d like to cancel them. I’ve heard that canceling credit cards can actually have an adverse effect on your credit score. Is that true? If so, why? I would think reducing the number of credit cards to only those in active use, plus perhaps a backup, would be a good thing. Thanks for your help. – D.M., Encinitas, Calif.

Dear D.M.: Assuming the cards cost you nothing, meaning annual fees, I don’t see any reason why you couldn’t keep them and have them available. However, if you want to cancel them, by all means go ahead. Your credit score is not going to suffer because you’ve decided to discontinue a business relationship, as long as there are no outstanding balances or issues. The point about having a backup, though, is not one to be lightly disregarded. Personally, I would just leave the cards in place.

Forecasting savings a difficult task

Dear Bruce: I’m almost 41. If I put $4,000 into a Roth individual retirement account every year for the next 25 years, would you be able to give me a ballpark figure on how much I would have for retirement or a formula to figure it out? – M.B., via e-mail

Dear M.B.: It is difficult to forecast how quickly your money will grow, given the fact we don’t know the rate of return. What you can do for each year is to divide whatever rate of return you think you’re going to receive – 6 percent, 8 percent, 12 percent and so on – into 72. This will tell you how many years it will take for those dollars to double. You can do this each year for not only the former deposits but also the current deposits and, at the end of your calculation, you will have some idea what you will have. Understand that the more optimistic you are with the interest rate, the higher the number will be. If performance does not meet your expectations, then, of course, the number will drop dramatically. At very best, this is only a guesst and should be treated as such.

Use student loans sparingly

Dear Bruce: I am 35, with no retirement funds. I was planning to go back to school for two years to become a registered nurse. As fate would have it, I’m no longer employed, which has expedited my return to school this fall. I currently don’t plan on working while attending school. Should I take out the maximum amount of student loans, so I can live on the money? I can work; I just prefer not to. Would you recommend using some of that money or investing it? If so, what kind of investments would give me a high enough return to maximize my earnings? – G.P., via e-mail

Dear G.P.: I would never discourage anyone from going back to school to better themselves. The fact that you lost your job is never something to celebrate, but the old adage about making lemonade with lemons might apply here. What I do find very distressing is that you can work but prefer not to. Your preferences aside, you should work as much as you are able and come out of school with no bills or a very small amount of debt. The news is full of stories about people going back to school. I remember one fellow said, ‘I thought I was doing everything right,’ and he graduated more than $100,000 in debt. One way this happens is through freeloading on loans rather than using the pay-as-you-go method.

There is no reason you can’t work full time and go to school full time. This may destroy your social life and put some strains on your family life, but, in my opinion, this is the only way to go. Good luck in school.

Try one last time to close account

Dear Bruce: Try and top this one. I have tried to cancel a well-known bank card for the past four months. I simply don’t need that much credit, and I found that when I do apply for loans I do need, they hold the credit availability of $15,000 against me. I have written the credit-card company on five different occasions, sent the cards back cut up, told them the account is to be closed. I continue to get a monthly statement even though I have not used the card, and now I just got a statement with a balance from the annual fee. What do I have to do to get them out of my hair? – B.R., Las Vegas.

Dear B.R.: I sympathize because dealing with computers – and that’s what you are doing – is a very frustrating proposition. Write one last letter and make copies. In the letter, you need to state that you hold your credit reputation dear and will hold the company civilly responsible if any erroneous information results in damage to your reputation. The information in this letter will state that the account has been closed, that you have no intention of accepting any further charges and you would appreciate they cleanse their computer.

Any further communication should simply enclose a copy of this message. In all likelihood, this will take several months before someone catches on. It’s so frustrating in this computer and voice-mail age. It’s almost impossible to get to a living, breathing person who can straighten things out for you.

Bruce Williams is a national radio talk show host and syndicated columnist. He can be reached at bruce@brucewilliams.com.[[In-content Ad]]