Dear Mary: I’m a few months from my Medicare birthday, when I’ll turn 65. I have had a high-deductible health savings account qualified insurance plan for more than 10 years.
The health savings account has a decent balance of nearly $15,000 because I’ve enjoyed good health and few medical expenses. My question: Can I keep my health savings account once I’m on Medicare? — Gordon
Dear Gordon: That’s an interesting question, and it sent me into a research scurry. Here’s what I’ve learned: Medicare isn’t a high deductible health plan, which is the number one requirement for a health savings account, or HSA. That means that once you are on Medicare, you will not be eligible to contribute to an HSA. But there is no problem if you keep an existing HSA or withdraw from it for medical expenses.
Here’s the bottom line: Once you are on Medicare, you can have an HSA and withdraw the funds to cover medical-related expenses. You just can’t put more money into it. Hope that helps!
Dear Mary: I have been following your “Debt-Proof Living” plan for longer than five years now, and I’m down to my final payments to becoming debt-free! My question: I have five credit cards and the last one will be paid off in December. What do I do with them then? I really don’t want that many credit cards for fear of identity theft, let alone the temptation of using them, but I have heard that closing the accounts will affect my credit score. What do you suggest? — Debbie
Dear Debbie: What fantastic news! I am so proud of you. This is a huge accomplishment.
As for your question about closing credit card accounts, you are right in a way. Doing so can ruin a person’s credit score; that’s not because of the number of accounts, but rather the cardholder’s utilization rate.
Your utilization rate is the ratio between how much credit you have available and how much of that available credit you have used over the billing cycle. Ideally, you should never be using more than 30% of your available credit on any one credit card account, as well as your total credit utilization ratio across all of your cards. The lower your utilization rate, the better.
Your utilization rate weighs heavily in determining your credit score. To determine your utilization rate expressed as a percentage, divide the total amount you have charged on one card and not yet repaid by its total credit limit. If you owe $500 on one of your accounts and it has a $2,000 credit limit, figure it out like this: $500 / $2,000 = .25, or 25%.
Furthermore, let’s say that you have four other credit card accounts all at $0 balance with a $2,000 credit limit each. Credit scoring looks at the utilization rate of each account, as well as your total usage across all the accounts.
Using my examples above, the total usage is $500 and the total available credit is $10,000. The math: $500 / $10,000 = .05, or 5%. That’s almost perfect!
Now back to your specific question. If you have five credit card accounts all at $0 balance, your utilization rate is 0%. If you have one credit card account with a $0 balance, your utilization rate is still 0%.
My advice is that you’ll be good to close up to four of these accounts once they reach $0 balance. Just make sure that you keep the credit card account you’ve had for the longest time because credit scoring gives points for the length of time you’ve had an account. Then, be very careful how you use that account — even if you’re always careful to pay it down to $0 every month.
I cannot guarantee that you won’t see your credit score dip upon closing accounts, but it should be slight, and then you’ll see it bounce back in short order.
Mary invites you to visit her at EverydayCheapskate.com, where this column is archived complete with links and resources for all recommended products and services. Mary invites questions and comments at https://www.everydaycheapskate.com/contact/, “Ask Mary.” Tips can be submitted at tips.everydaycheapskate.com/. This column will answer questions of general interest, but letters cannot be answered individually. Mary Hunt is the founder of EverydayCheapskate.com, a frugal living blog, and the author of the book “Debt-Proof Living.”