Singletary: Get rid of clutter from your real house and your financial house

I’m concentrating on four areas: a kitchen cabinet full of plastic containers, a junk drawer, my home office and a closet overflowing with games. In my financial life, I assessed my assets and liabilities and completed a net worth statement. I’ve created a template to help you determine your own net worth, at http://wapo.st/networth.

As for your financial house, spend this week getting rid of credit cards you don’t need. Start by pulling out or downloading the last six months of statements. Reflect on the money you spent. Highlight purchases that you could have done without.

If you’ve got cards that carry an annual fee and you really don’t use them as much as you thought, think about canceling them.

Consider this information from a recent story in the Harvard Business Review about research on the best strategy to pay off credit card debt:

n Nearly half of U.S. households are unable to pay their credit card bills in full each month.

n American households owe more than $800 billion in credit card debt. Per household, that translates to more than $15,000 spread across an average of four credit cards. (Come on, some of you see that dollar figure and say to yourself, “Is that all?”)

Many folks believe you need multiple cards to ensure a good credit score. That’s not true. Having one card and paying the bill on time each month will do the trick.

You also don’t need to carry debt to get a good score. You just have to show that you can use debt responsibly and pay it back on time. Ideally, you want to pay the charges off every month, to avoid paying interest. If you do roll over a balance, make sure you aren’t using much of the credit line.

Of course, your next question might be: “Well how much of my credit should I be using?”

You might have seen it reported that you shouldn’t use more than 30 percent of your available balance; otherwise it negatively impacts your credit score.

But this figure is just a general guideline. There is no specific threshold in which your “utilization rate” begins to harm your credit score. FICO, the company that created the credit-scoring model used by most lenders, has found that consumers with scores of 800 or above use an average of 7 percent of their available credit.

So determine how much of your credit line you are using. If you’re maxed out or close to it, that’s bad and it’s definitely time to declutter. If you are carrying credit card balances, don’t cancel the cards just yet. I just need you to put them on ice — literally. Drop the cards in a container, add water and freeze them. (And if you do, send me pictures at colorofmoney@washpost.com.) Or secure them in a file cabinet you are going to clear out as part of this challenge.

Never cancel a card if you have any outstanding credit card debt. If you’re carrying balances and you close an account, it may cause your overall utilization rate to increase, which in turn can result in a dip in your credit score.

In the last week of the challenge, I’ll show you a method to pay off the debt that recent research has shown to be effective.

Once you clear all the debt from the cards, you can cancel the ones you don’t want. And don’t worry about losing a card’s positive history. That’s another credit card myth. A closed account with no negative history will remain in your credit files for up to 10 years from the date it was closed. In the case of negative history, such as late payments, that information remains for seven years from the original delinquency date.

I’ll be hosting an online chat to answer questions you might have about your credit cards at noon Eastern time Thursday at washingtonpost.com/discussions.

During this challenge, just keep telling yourself, “I can do this.” Because you can.

Michelle Singletary welcomes comments and column ideas. Reach her in care of The Washington Post, 1150 15th St. N.W., Washington, DC 20071; or singletarym@washpost.com.