Hasta La Ideas

Reader April submitted the following to Ask Unclutterer:

My husband and I have one credit card that we allow ourselves to actively use. By actively I mean it is the one we use to buy airline tickets, etc. but we pay it off right away BUT we have several credit cards going way back to our time before we met….most of them don’t have balances but a few do. The balances are the result of the old game of moving balances around to get a great rate until we can pay them off. So there are NO new purchases on these cards at all ever, just balance transfers. So how long do I need to keep those statements? I have so much paper from these cards. What the heck do I keep and what can I shred?

I want to begin by laying out my financial principles before delving into specific answers to your questions. These are the fundamental guidelines I follow for uncluttered living:

1. Do not carry consumer debt. The only debt you should ever consider acquiring is a home mortgage and student loans (and, I’m not really in favor of student loans). Everything else should be purchased outright, including automobiles. Live within your means and you will never have to worry about debt cluttering up your life.
2. If you must, use a charge card, not a credit card. For conveniences like purchasing airline tickets and renting cars, you may want to have a charge card. Pay this balance in full every month. Never carry a balance for more than 30 days.
3. Save as much as you spend. If you have a steady paycheck, set up with your human resources department to have your salary automatically deposited into three accounts each month. After taxes and your retirement savings are pulled out by your company, have 50 percent of your take-home earnings deposited into your checking account, 40 percent into an emergency savings account (to cover things like large medical expenses if you should ever suffer a severe illness or injury), and 10 percent into a savings account for big and/or fun future purchases (vacations, cars, etc.). If you don’t have automatic deposit with your company, make these three deposits yourself. Once your emergency savings account becomes more than $5,000, talk with a financial planner to see if this money should be moved to a better performing investment. When you have saved half a million in emergency savings (and I’m no where close to this amount yet), you may wish to consider adjusting these percentages.

As I just said, these are the guidelines I have chosen to follow. Living this way is the only way for me not to worry about money or financial issues. You may be able to live with car loans and consumer debt and not be distracted by worries about having enough to pay your bills or what you would do if you needed a large amount of money in an emergency. I can’t live that way, though. If I have debt, I think about it, and I don’t want that kind of clutter in my life.

Knowing this about my financial guidelines, I think the first thing I would do is cancel all of the credit cards that don’t carry any balances. You don’t need them. Having them active runs the risk that someone can steal them and incur thousands of dollars of debt in your name, fills your life with paper statement clutter, and is a spending temptation. (Cancel them on a schedule, per Vida’s advice in the comments, if you are worried about your credit score. Also see “How and when to cancel a credit card” on Get Rich Slowly.)

Your next priority should be to pay off all of your balances on your not-current cards. Dave Ramsey suggests paying off your smallest balance first so that you get a relatively immediate satisfaction. I recommend paying off your highest interest balance first since it is the card that is wasting the most money. Choose whatever system works best for you, but pay off the balances. Once the balances are gone, cancel the cards.

Pay off the balance on your “actively used” card, cancel the card, and open a charge card account with someone like American Express. This way, you won’t be tempted to carry a balance from month-to-month, but you can still accrue awards points for the charge card purchases you do make.

After you cancel the cards, keep your statement that acknowledges you canceled the card and closed the account with a zero balance. You have no need to keep any additional paperwork once you have this statement from the financial institution.

As for your charge card moving forward, when the statement arrives each month you need to reconcile it with your receipts. If all charges are correct, file the monthly statements in a folder in your filing cabinet and shred any receipts you don’t need for tax or legal reasons. When you receive your annual statement, reconcile your monthly statements with the yearly statement to make sure that everything is correct. Under the advisement of my accountant, I keep monthly statements for three years and annual statements for the life of the account. However, I know some accountants suggest keeping monthly statements for seven years and others say get rid of them after you receive and reconcile your annual statement. Talk to an accountant and follow the advice he/she gives you for compliance with your state’s laws and practices.

And, remember, this is what I would do. I am sure that our readership has significantly different opinions and suggestions, so definitely check out the comments. Also, you may wish to check out Regina Leeds’ book One Year to an Organized Financial Life and Dave Ramsey’s The Total Money Makeover for even more ideas.

Thank you, April, for submitting your question for our Ask Unclutterer column.

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