Closing Credit Card Accounts to Manage Debt

Sometimes closing credit card accounts helps you get out of debt. Learn which ones to close.

By , Attorney

One way to manage high credit card debt is to get rid of some of your credit cards. Having too many cards can lead to overspending. Before you start closing credit card accounts, take some time to figure out which ones are best to close, and which ones you are better off keeping.

Determining credit cards to ditch, and which to keep can be tricky. Nolo's Solve Your Money Troubles: Strategies to Get Out of Debt and Stay That Way offers the following advice:

Rules to Follow When Closing Credit Card Accounts

Consider these "rules" when closing accounts:

Here are some rules to follow:

  • Close accounts on which you are delinquent or maxed out, and ask the creditors to identify them to credit reporting agencies as "closed by customer request"—otherwise, the credit card issuer may close them for you with a negative notation in your credit record. A card issuer will close your account and cancel your privileges. It might also demand that you pay off the balance. Ask that it send you monthly statements allowing you to pay the balance off over time (and any interest and fees that accumulate on it) and suggest a reduced lump sum payment or a payment plan you can afford. Or contact the bank whose card you are keeping and ask it to transfer the balance on the account you are closing to the account you are keeping. If you're delinquent on all your accounts, keep open the most current account.
  • If you pay your bill in full each month—that is, you don't carry a balance—close the accounts with the highest annual fees. Make sure that the accounts you keep open have a grace period in which you can pay off your bills and not incur any interest.
  • If you carry a balance, close the accounts with the highest interest rates, shortest grace periods, and least favorable balance computation method. Check your credit agreement disclosures to see which method the company uses to calculate interest. Keep the cards that use the adjusted balance method, or if none do, your next best choice is to keep one that uses the average daily balance method, including your payments but not your purchases during the billing cycle.
  • If you sometimes find yourself needing to pay at the last minute by phone, get rid of ones that charge extra if you talk to a customer service person to expedite payment. If you think you might make late payments here and there, get rid of ones with the highest late fees and penalty rates.

Will Closing an Account Affect Your Credit Score?

Closing an account, especially one you have had for a long time, may affect your credit score. On the one hand, if you close an account you haven't used and that has no, or only a small, outstanding balance, your credit rating may decrease. Why? The credit report may show your overall debt is now larger in relation to your total available credit. FICO recommends against closing unused credit card accounts if your purpose is to raise your FICO score. (See FICO's "Will closing a credit card account help my FICO score?")

On the other hand, many creditors refuse credit to people they believe already have too much credit and some are even closing unused accounts themselves. Having an unused account could be grounds for denying you any future accounts you do want or limiting increases on existing accounts. And a notation in your credit report of "closed by consumer request" may be better than a notation that the creditor closed your account.

So, to maximize the benefit of closing accounts, close the accounts on which you are in default already, or ones with large outstanding balances owed, particularly ones that are maxed out. But be aware that a creditor may close out an unused account, so you may want to either (1) make a small purchase every few months and pay it off in the grace period, or (2) close the account before the credit card company closes it.

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