How Trump’s Hatchet Man Is Destroying Consumer Protections

Dear Liz: You recently advised a couple who have excellent credit, no outstanding loans and a low credit utilization rate that they could close their credit card with a company that keeps reducing their credit limit when they don’t spend enough on their card. The writer has to contact the credit card company every time to get it restored to its original credit card limit.
You suggested they could close their account but you didn’t address their question about whether they’d be better off settling for a reduced credit limit. Wouldn’t a reduced credit limit harm one’s credit scores less than closing an account?
Answer: Probably, but the point was that closing the account was unlikely to do significant or lasting harm as long as they had other credit cards. The couple could make the effort to try to keep the account open, but the hassle might not be worth the limited benefit to their credit scores.
People with excellent credit are often overly fearful about closing credit cards. It’s true that you generally should avoid closing accounts if your scores aren’t great or if you’re in the market for a major loan, such as a mortgage. It’s also a good idea to keep a big gap between the amount of credit you use (your balance) and the amount you have (your credit limit). That could mean hanging on to your highest-limit cards or having the credit limit of a card you’re closing transferred to another card you’re keeping.
But you shouldn’t be afraid of closing accounts if you have a good reason to do so.
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Dear Liz: When Roth conversions came along, they were touted as a way to avoid taxable required minimum distributions in retirement. I had built up a solid “traditional” account, and saw no reason to add to my tax bill by converting. I ignored the noise, although I did open and contribute to a Roth account in addition to my traditional IRA.
Now in my 70s, living on Social Security, RMDs and some investment income, I’m grateful I blocked the noise. In fact, I have the RMD income to thank for getting me to realize that I could afford to retire. If I’d converted, I’d probably still be working and afraid to spend my tax-free Roth. And it turns out the tax bite on the RMD isn’t all that bad.
Answer: Thanks for sharing your perspective!