Summertime is wedding season, which can provide ample opportunities to reflect on our personal relationships. But now is also a good time to take another look at your relationship with your financial products -- especially your credit card.
As with finding a mate, picking the right credit card is all about chemistry. Most of us kiss a few frogs before we find the right one, but don't let a mismatch hang around for too long. You don't want to lose time you could be spending with a better fit. Here are three surefire signs you and your plastic should call it quits.
1. You're not using it, and it's charging an annual fee.
Paying an annual fee on a credit card only makes sense if you're earning enough in rewards to outweigh the fee. For example, let's say you have a credit card that earns 2 percent on every purchase and charges an annual fee of $95. You'd have to spend $4,750 per year on the card just to break even. Otherwise, that annual fee is money down the drain.
Keeping a credit card open and active to preserve your credit score is generally a smart move, but only if it's earning enough points or miles to justify the cost of keeping it around. The good news is that canceling an unused credit card likely won't do serious damage to your score, as long as you have an otherwise healthy and diverse credit history and follow these tips:
-- Pay off balances on other cards before you cancel the old one. This move will keep your credit utilization ratio (the amount you owe on your cards compared to the cards' limits) from shooting up when you lose the available credit from your old plastic.
-- Keep at least one credit card open at all times. Although your canceled card won't drop off your credit report immediately (if you have positive history with it, it could remain for up to 10 years), it's wise to keep at least one open and active revolving account in your credit profile.
-- Make on-time and in-full payments on all your other accounts.
2. Its rewards program is no longer useful to you.
When you picked your credit card, its rewards program might have been a key consideration. Perhaps it provides extra points or miles on dining out and travel, which were two of your biggest spending categories when you applied for it. If they still are, feel free to keep swiping. But if your lifestyle has changed over the years, it might be time to move on to another card that offers a rewards program that fits your spending habits better.
Another possibility is that you chose your card because you thought you'd get good use out of its rewards. If, for example, you got a travel credit card because you wanted to become more of a globetrotter, but you can't seem to make the goal happen, switching to a cash-back card is probably a smart move.
3. You can't control your spending.
The average American household has $7,400 in credit card debt as of June 2015, according to a NerdWallet analysis. Although it's possible that some of this comes from unexpected expenses, studies from behavioral economics indicate that people spend more with credit cards than they otherwise would with cash. In some cases, kicking a credit card to the curb and replacing it with cash or debit might be a wise choice so that you're able to meet other financial goals.
Swearing off credit cards altogether is a big deal, because you'll miss out on the ability to build credit and earn rewards. Before you take the leap, experiment with different budgeting and spending strategies to see whether they can help you get a handle on your outflow. If nothing works, and cutting up the cards is the only option, be sure to pay them all in full first. Then use the money you're saving to invest or pay off other debts to make the move away from plastic worthwhile.