Posted by Things to Consider Before You Close a Credit Card with a Balance. Do you want to know What to Think About Before Closing a Credit Card with a Balance? If you do, then here is a chance for you to simply do so.
According to the topic above, you are going to know some things you should possibly consider when you want to close a credit card with a balance. And for you to know all these things, you will have to read this article and get all the necessary information as soon as possible.
Things to Consider Before You Close a Credit Card with a Balance
So what are these things to consider when you want to close your credit card with a balance? Many users online usually close their credit cards with a balance without even considering the outcome or a few things before doing so.
Sometimes, doing so may even affect the users, so it is advised that you should go through some thoughts or actions before you do so.
What Happens When You Close A Credit Card Without Paying Its Balance?
Closing your credit card account does not even delete the debt, nor does it even sever the connection to your credit report. The most significant change that there will be is simply that you cannot use your card anymore.
What stays the same:
- The debt is yours, and it will also show up on your credit report.
- The credit card issuer will then continue to send you monthly statements for the amount you owe.
- The interest will also continue to accrue every month.
- If you make minimum payments on your debt each month, your account may remain in good standing.
- If you then stop making payments, you may see additional charges, and your issuer will likely report the delinquency to the three credit bureaus. After that, your credit score will plummet.
What changes:
- You won’t be able to use your credit card to make purchases anymore.
- You may not have to pay the annual fee.
How Closing a Credit Card with a Balance Will Impact Your Credit
Closing a credit card (whether you have simply paid the balance down to zero or not) can be a way to impact your credit utilisation ratio. That ratio simply represents the amount of credit you are using compared to your total credit limit. If your credit utilisation ratio is high, it can then ding your credit score.
For instance, let’s say you simply have two credit cards, each with a $5,000 limit. Card one simply has a balance of $5,000 while card two has a $0 balance. Then your credit utilisation ratio is 50% ($5,000/$10,000). If you then close card two, your credit utilisation ratio will simply jump to 100% ($5,000/$5,000), which can then negatively impact your score. This can even hurt you even more if you are planning to take out a large debt in the future, like an auto loan or a mortgage.
A change to your credit utilisation must be the only major credit impact if you then close the account, but continue to simply make at least the minimum payments until your debt is gone. If you then close the account and also fail to make payments, then your credit score will simply drop as it would after late payments on any account.
When It Makes Sense to Close a Credit Card Before Paying Down the Balance
Why would you just do it? Preventing yourself from simply using your credit card might even be beneficial in certain situations.
You want to avoid adding to your debt: You cannot get into credit card debt without a credit card, so if you are worried about accidentally overspending, it might even make sense to close your account ASAP so that your only choice is debit.
You want to avoid an annual fee: You have stopped using the card and are solely working on paying down the balance, but it is time to pay that annual fee again. You will simply want to check with your issuer first, but cancelling the card might even exempt you from paying the annual fee, even if you have a remaining balance.
Alternatives to Closing a Credit Card with a Balance
If you don’t want to close your account, there are several alternatives you can try. These include:
Pay Off Your Debts, Then Cancel
Things can simply get complicated if you then cancel your card while it still has a balance. Maybe your auto-pay stops, or simply maybe your mobile app is not as easy to navigate. If you are not running from an impending annual fee or the urge to overspend, it is probably easier to pay off your credit card debt and then cancel.
Negotiate Your Account Terms
Depending on why you simply want to close the account, it might then make sense to contact your credit card issuer and explain your situation. By simply negotiating with your credit card issuer, you might then achieve lower minimum payments, waived fees, or a reduced APR. This is even easier to do if you have a good history of paying on time.
Downgrade to a Card with No Annual Fee
An annual fee is simply one reason that you might want to cancel your credit card, but did you know there is another option? Many credit card issuers simply allow cardholders to do what is called a “product change. This is where you simply switch to a different credit card but keep the same account. Generally, you do not need to reapply for a new card. This way, you can simply avoid the annual fee by simply noting it.
Transfer Your Account Balance
If you were considering simply closing the account to get rid of the debt, consider a balance transfer. This is simply a debt elimination strategy that can give you over a year to focus on paying down your balance, without racking up interest.
Reserve the card for emergencies.
If you do not think you can then avoid overspending unless you close the account, by all means, close the account. But if you are able to leave the card tucked away for emergency use only, you can then avoid the credit hit that comes with closing a credit card. This only works if you are honest with yourself about what you are ready for, however.
FAQs
What Happens If You Close A Credit Card With A Negative Balance?
You usually do not have to do anything in order to claim a negative balance on your credit card. Your credit issuer should then send you a check or deposit for the refund after you simply close your card. If you want to make sure, you can then contact your card issuer when you close your account.
How Do I Close a Credit Card Without Hurting My Credit Score?
If you then need to cancel a credit card, it’s best for you to pay it off in full first so that the balance does not continue to affect your credit utilisation ratio. Minimizing the balance on any other open accounts will then also keep this ratio down and even lower the impact on your credit score.
How Long Does It Take For A Credit Card To Close Due To Inactivity?
There is no set time period for a credit card issuer to cancel your inactive credit card. It will simply depend on the individual company policy, so it’s a good idea for you to then check your card issuer’s terms if you have been inactive for a few months.
Is Closing Your Credit Card a Bad Idea?
Whether or not closing a credit card is the right financial move for you simply depends on your financial situation, but it then warrants serious consideration before you can take steps to do so. Sometimes you might even be eligible to switch an account to a new card, which can then be a way to get a lower annual fee or different card terms. If you are then concerned about fees, rates, or other issues with your card, contact your issuer to discuss options that might help you keep your account open but use a different card.