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You dont need to pay off your credit card before closing your account. However, given the downsides, its not usually advantageous to close the account. If you decide to proceed, you will still be responsible for paying off any outstanding balance and the card issuer may still charge you interest.
So, you’re thinking about closing a credit card with a balance. Maybe you’re moving to a new country, or maybe you’re just trying to simplify your finances. But before you do anything drastic it’s important to understand the potential consequences of closing a credit card with a balance.
Here’s what you need to know:
- You’ll still be responsible for the balance. Even if you close your account, you’ll still be responsible for paying off the balance. The card issuer will continue to send you statements, and interest will still be applied to the balance.
- It can hurt your credit score. Closing a credit card can have a negative impact on your credit score. This is because it reduces your available credit and increases your credit utilization ratio.
- You may lose rewards. If you have a rewards credit card, you may lose any unredeemed rewards if you close your account.
- It can be difficult to reopen the account. If you decide you want to reopen the account later, it may be difficult to do so. The card issuer may require you to reapply for the card, and you may not be approved.
Here are some things to consider before closing a credit card with a balance:
- Can you afford to pay off the balance? If you can’t afford to pay off the balance, closing the account will only make things worse. You’ll still be responsible for the debt, and you’ll also have to deal with the negative impact on your credit score.
- Do you have other credit cards? If you have other credit cards, closing one account may not have a significant impact on your credit score. However, if you only have a few credit cards, closing one could have a bigger impact.
- Do you need the rewards? If you have a rewards credit card, you may want to consider keeping it open even if you don’t use it often. You may be able to redeem your rewards later, even if you close the account.
Here are some strategies to lessen the consequences if you decide to cancel a credit card that has a balance:
- Pay off the balance as soon as possible. This will help to reduce the amount of interest you’ll have to pay, and it will also improve your credit score.
- Transfer the balance to another credit card. This can be a good option if you can find a card with a lower interest rate.
- Talk to your card issuer. They may be willing to work with you to find a solution that works for both of you.
Ultimately, the decision of whether or not to close a credit card with a balance is a personal one. There is no right or wrong answer, and the best decision for you will depend on your individual circumstances.
Additional Resources
- Forbes Advisor: Closing A Credit Card With A Balance: What You Need To Know
- MyFICO Forums: Credit Card Closed with Balance
Frequently Asked Questions
Q: What happens if I close a credit card with a balance and don’t pay it off?
A credit card issuer will probably send the account to collections if you close the account without paying the balance. This will lower your credit score and may make it more challenging for you to obtain credit in the future.
Q: Can I reopen a credit card that I closed with a balance?
A: It’s possible to reopen a credit card that you closed with a balance, but it’s not guaranteed. The card issuer may require you to reapply for the card, and you may not be approved.
Q: What’s the best way to pay off a credit card balance?
A: Paying off a credit card debt as quickly as you can is the best course of action. Making additional payments, moving the balance to a credit card with a lower interest rate, or applying for a personal loan are some ways to achieve this.
If I’m having trouble paying off my credit card debt, what should I do?
A few things you can try if you’re having trouble paying off your credit card debt You can seek assistance from a credit counseling agency or discuss a payment plan with your card issuer. You can also consider consolidating your debt into a personal loan.
Closing a credit card with a balance can have a negative impact on your credit score and your finances. Before you close an account, it’s important to weigh the pros and cons and consider all of your options. If you’re struggling to pay off your credit card debt, there are a few things you can do to get help.
What Happens After You Close Your Credit Card?
Once you close your credit card, you wont be able to use it for new purchases or transfers. However, the card agreement still applies, and you have a legal obligation to pay off the debt.
After closing your card:
- Youll receive monthly statements. The card issuer will send you monthly statements that include the minimum payment amount, accrued interest, and balance.
- Interest continues to accrue. You may be charged interest by the credit card issuer on the outstanding balance until it is settled.
- Card issuers cant charge you new or higher fees. Card issuers are not allowed to raise your account’s annual or monthly fee or charge you a fee to cancel your card. However, until the balance is paid in full, you might still be required to pay yearly or monthly fees.
Your account can stay in good standing even after it is closed if you have been making payments on time and you continue to do so. However, missed payments could lead to fees and derogatory marks on your credit report that hurt your scores.
How Closing Credit Cards With Balances Can Impact Your Credit
Closing a credit card can impact your credit scores in several ways. Closed accounts in good standing stay on your credit reports for up to 10 years. When you close the card and fall behind on your payments, the account may be removed from your credit report seven years from the original date of delinquency.
In either case, the account can impact your credit scores as long as its on your credit report. But some of the effects rely on the type of credit score and whether the card has a balance. The benefit of closed accounts in good standing may not be as great for your credit scores as it would be if they were still being used.
Generally speaking, if closing a card with no balance raises your credit utilization ratio, it may lower your credit scores. The age and payment history of an account can affect your credit scores for both FICO® and VantageScore® credit scores, even if it has a balance, until the account is removed from your credit reports.