Canceling a credit card with a balance is an issue many car holders have to deal with. In case you find yourself in a situation where you fear that you may have fallen victim to identity theft, or are unable to curb your over-spending due to having that credit card in your pocket, then cancelling your credit card would become a necessity.
Whether your account has a previously outstanding balance or you have not paid for what you have currently purchased before deciding to cancel it, your credit card provider will cancel your card upon your request.
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Payments After Credit Card Cancellation
In as much as it can be done, cancelling that credit card ceases your ability to make new purchases, it does not automatically mean that the debt incurred is also cancelled. You will be required to make your minimum monthly payment on the account and will continue to receive the monthly credit card bill.
This will continue until your balance is paid off in full. Once payments have been completed, only then will your account be officially closed by the credit card company.
Consequences of Late Payments on a Cancelled Card
Your inability to make new purchases with your credit card will exempt you from accruing over-the-limit fees, although the credit card provider may continue to assess late fees from your balance, which will be considered to have fallen into delinquency. You will be required to only pay interest on the remaining balance, unless you make late payments.
It is however important for you to note that by law your credit card company can only increase interest on payments made that are overdue by more than 60 days.(Source: Credit Card Accountability, Responsibility and Disclosure Act,2009).
Effects of Credit Card Cancellation on Credit Ratings
A negative impact will be felt when a credit card account is closed before you clear any outstanding debts. This is because when calculating your credit score, your credit utilization ratio is considered. (This is the ratio determined by the amount of debt carried against your spending limits.)
At all times, you would be seeking to lower your debt and increase your spending limit . However, closing an account with an outstanding balance would only reduce your credit limit but leave your debt as it was, ultimately lowering your credit score.
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Other options exist, that would resolve the problem with fewer challenges than outright cancellation. A quick and easy solution to overspending using a credit card would be to cut the card in two. This would limit your ability to purchase, as the card is required to be in good condition for transactions to be made on it.
For the strong willed, you could make a conscious effort to leave the card behind when going shopping, thus restricting its usage.
Finally, you could transfer the balance to another existing card, enabling you to enjoy lower interest rates through the balance transfer. This will enable you to close your credit card without having any balances to worry about!