Closing a Credit Card with a Balance
Closing a credit card is not a decision to be taken lightly. There are only a few good reasons to close a credit card, the biggest usually being you have to pay fees for the card, but the benefits aren’t worth it. Before making the decision to close an account, make sure it’s the smartest choice for your situation, and that it won’t negatively impact your credit score.
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Can You Close a Credit Card With a Balance?
Yes, you can, but if you have a credit card with an existing balance, or a mountain of debt behind it, closing the account won’t get rid of the money you owe. You will still need to pay back that money, even though it is possible to close the account with money still owed. If you do go forward with closing an account with debt, you will have a limited window to either pay off the debt or remove it from the card’s account.
How to Close a Credit Card With a Balance
Before you call up your credit card issuer in order to cancel your account, you need to consider your current balance. That debt won’t be erased or forgotten, and will eventually need to be repaid.
Make a Plan to Pay Off the Remaining Debt
You’ll need to pay off your debt, and if your current balance isn’t too much, paying it off and then canceling the card won’t be hard. Problems arise when you have a large amount of credit card debt and are looking to close the associated card.
Every credit card issuer has different rules about how quickly you have to pay off any debt after requesting to close an account. Some require it right as you close, while others give about a month grace period. Check with your credit card issuer before closing the account. Failing to pay off any remaining debt can lead to extra fees, a debt going to collections, and a large blow to your credit score.
If you won’t be able to pay off that debt before a deadline, one solution is to create a plan to pay off the debt before contacting the issuer to cancel the card. If this is the route you want to take, make an aggressive plan to pay off the debt. Credit card interests rates are often extremely high, meaning the longer you wait to pay off the debt fully, the harder it will be. By aggressively paying off the debt, you lessen the burden caused by interest, meaning you can close the account. Make a budget for your debt and don’t close the credit card account before the debt is paid.
Moving the Debt to a Different Account or Format
If your credit card debt is too large to pay off, and with interest accumulating every month making it bigger, you’ll need to find a new solution. It is possible to move credit card debt from one card to another, or even consolidate it to a different form of debt, hopefully one with a lower interest rate.
To move the debt from one card to another, you’ll need to do a “balance transfer.” You’ll need to inform both your old and new credit card companies of what you want to do, and likely there will be fees associated with doing this. Doing a balance transfer can help consolidate your debt, get you a slightly lower interest rate, and free up a card for you to close.
Similarly, many lenders have programs to help people pay off credit card debt by transferring it into a long term loan format. Interest rates will still exist, but at a much lower rate, and will become a regular monthly payment for you (much like a car loan or a mortgage).
Contact the Credit Card Issuer
If you have concerns about closing your card or paying off your current balance, reach out to your credit card issuer. They often have solutions to help you out with your goal of paying off a debt, or help in preventing creating more debt.
For example, if you want to pay off the card but are afraid if you have a credit card you’ll overuse it, you can request the credit card issuer to freeze your account. That way, you can’t make extra charges and add to your debt situation. Some issuers might even have solutions to help you pay off outstanding debts, like moving the debt to a different format with a lower interest rate.
Why Not Wait Until the Account is Paid Before Closing the Account?
Unless you have a massive amount of debt, or your have a manageable amount of debt but your credit card issuer is raising your interest rates, there is rarely a reason to close a credit card account that has a balance. If you fall into the two above situations, it may be worthwhile to look into either consolidating or moving the debt. In other situations though, seriously consider paying off your debt before closing your account.
In fact, it’s a good idea that after you’ve paid off your current balance to wait another month. That way, if something strange happens, like an interest payment from the previous month occurs or a random pending payment goes through, you can pay those off too. If you close your account with those expenses on your card, you might have to pay a fee or risk it going to collections. Then, once you are two months in a row free of costs, feel free to cancel the credit card.
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Ben Allen is a freelance content creator and digital marketer who believes in helping small businesses succeed. He spends his free time bragging about his two daughters, eating stuffed crust pizza, and playing video games.
This post was updated February 28, 2019. It was originally published June 28, 2018.