Is it possible closing a credit card that still has a balance? Yes, but you will still have to pay off that balance eventually. If you close a credit card account that still has an outstanding balance, you’ll keep paying monthly interest on the unpaid balance.
It is considered best for you to pay off the credit card or transfer the balance to a different card before you cancel the card. Although in some cases, you might want to leave the account open but use it only infrequently.
Reasons People Choose to Close a Credit Card Account
It might be to avoid an interest rate increase or stop paying an annual fee.
You may also decide to close an account if you can’t control your spending and need fewer cards that you can max out at your disposal.
The above reasons are good enough reasons for closing your credit card account that still has an outstanding balance. Be it as it may, note that closing a credit card will have some effect on your credit score. The significance of the effect depends largely on some factors like how much available credit you have on other cards and how much you make use of them.
Contact Customer Service
The first thing to do when you’re considering closing a credit card account because of an interest rate increase or an annual fee is to call customer service. Intimate them on what you plan to do and inquire if they can maintain your existing rate or cancel the fee. If the answer is yes, you can still benefit from using that card and avoid any impact on your credit score.
Paying Off or Transferring a Balance
A 45 days notice must be given to you by the issuers before an interest rate hike takes effect. If your request to keep the rate at the same level was declined by the bank, you can make use of that time to pay off the balance if you have the money available, or to transfer the balance to a different card. You can then choose to cancel the card or use it only when you know you are able to pay off what you’re charged during a monthly statement period.
Alternatively, you can close the account with the annual fee after you’ve paid it off or transferred the outstanding balance and before the fee gets charged to your card. The fee may be applied during the month in which the account was opened or at the beginning of the calendar year. You can search through past statements to see when the fee is levied.
Note however these account closures can be initiated by either party (i.e.) a bank may decide to cancel your account if your card has not been used in a while, maybe as short a period as six months.
Credit Score Impact
Take note, that your credit utilization ratio which is an important factor in determining your credit score will be negatively affected if you charge a lot and/or maintain high balances on other cards if the card you’re canceling has a high credit limit. The credit utilization ratio compares the total amount of credit you have available to the total amount you’re using.
Your credit score may also take a detour if the card you’re closing was the one you’ve had the longest, as this will shorten the length of your credit history.
Loss Of Rewards
You instantly forfeit any rewards if any once you cancel your card. These are rewards like cash back or airline miles, you’ve accumulated. If your card offers rewards points, it is advised you redeem as many of them as possible before you cancel the card.
Get a Written Confirmation
It is ideal to get a written confirmation notice in the mail after you’ve asked for the cancellation of your credit card. If this is not the case, follow up with the customer service after two weeks.
You can help offset the loss of available credit from the canceled card by adding a new card with a lower interest rate and without an annual fee or ask for a credit increase on an existing card.
Avoid closing more than one credit card account in a short space of time, as multiple cancellations can hamper your credit score.