All debt is bad, but can you have too much credit?

I used to be a huge airmiles accumulator. I shopped regularly at sponsors (namely, Safeway, where I bought most of my groceries) and used an airmiles credit card to get even more points. I actually got enough airmiles to buy a KitchenAid mixer. However, when my accumulation rate dwindled and I learned the cash value of airmiles — less than 1%! — I decided to switch to a cash-back credit card. I redeemed my remaining airmiles for Banana Republic gift cards and closed my airmiles Mastercard account.

I thought about keeping the credit card, but what did I need 3 credit cards for? It had the shortest credit history and the lowest limit, so I couldn’t think of any reason to keep the account open. After I closed it, my eyes then turned to my line of credit. Should I close that too? What about all the other kinds of credit I keep?

Types of debt/credit I’ve tried:

  • credit cards
  • department store cards (not the wisest choice, let me tell you)
  • lines of credit
  • student loans
  • RRSP loan

Types I haven’t, but could probably get:

  • bank loan
  • payday loan
  • car loan
  • mortgage
  • investment loan
  • personal loan from friend or family member (actually I would like personal GIFTS please, you may donate via PayPal. I’m just kidding)

In short, there’s a lot of credit and debt to be had out there.

I received my line of credit from my bank when I was in my second year of university. I used it to fund my braces and some shopping sprees at Sephora. In any case, I don’t need it anymore but I always have that fear that I might need it later — which makes no sense, because every month that passes I become more financially secure but I worry anyway.

Would I use it in an emergency? I don’t think so. I’m not sure what catastrophes are in my future, but I can cope with any immediate crisis costing $2,100 or less using my emergency fund, and if I found myself in need of more, I think I would probably turn to cashing in GICs early or liquidating stocks before I take on any debt.

Would I use it to buy a car? Probably not. I recently received a letter that they’re raising the interest rate on this line of credit  from 6.75% to 8.75% and I feel like I could probably get a better rate on a traditional car loan — especially if I snag one of those “0% for 5 years” rates.

Would I use it to fund a down-payment on a home? No, because the thought of adding a big line-of-credit payment AND a mortgage to my life at the same time makes me think I might have to give up something like, oh I don’t know, buying food.

In short, I don’t need it — but should I keep it? The account is now about 4 years old with perfect payment history. I’ve made somewhat of an effort to keep it alive over this time with various balance transfers, but for the most part it’s a neglected step-child from a previous marriage with Reckless Spending On Consumer Crap.

My concerns with keeping it open are: firstly, being overly exposed to identity theft. I’ve had my credit and debit cards stolen before. Even though the bank acted quickly and painlessly put everything back as it should be, I still wouldn’t categorize it as a particularly fun experience. Furthermore, my credit cards have much lower limits than my line of credit. I really don’t want an identity thief to get a Mini Cooper before I do, especially with my account. Secondly, what if I relapse into Spendy McSpenderson again? Should I really have access to that much money knowing my penchant for luxury goods? Isn’t that like keeping your liquor cabinet stocked even though you’re an alcoholic?

What are your thoughts? Keep the account for the credit history and “just in case”? Or close it to protect myself against identity theft and the opportunity to make bad financial decisions?