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What You Need To Know Before You Cancel A Credit Card Account

Most folks in the states have more than one credit card. Some folks have more than they should really have.  The reason it’s so easy to get a credit card is that people can send out application after application after getting “pre-qualified” ones in the mail. And, having too many credit cards can lead to excessive debt for some folks because they make poor financial decisions.

Negotiating Credit Card Debt

The way people deal with their high credit card debt is to cancel their credit card accounts. Before you decide to terminate your card accounts, there are some things you need to consider.

1 – You shouldn’t terminate a credit card you still have a balance on. The reason is that credit card companies have some type of cancellation penalty such as the interest rate increasing to its maximum level if it’s cancelled while carrying a balance.  Make sure you pay the credit card off before you cancel the account.

2 – If you cancel a credit card, it will negatively impact your credit score. It would seem illogical that this happens. However, it can happen. Your credit score is based on total available credit and your outstanding balance. If you choose to cancel a card that’s got a zero balance, you actually hurt your score.

For instance, you have four credit cards that have a total of $8,000 available credit with an outstanding balance of $2,000. Assume that each credit limit is $2,000. The ratio is presently .25 or ($2,000 divided by $8,000). Cancel one of those cards that have a zero balance and this radio increases to .33 or ($2,000 divided by $6,000).

Since the ratio is higher, it can negatively impact your credit rating. If you’re trying to get a mortgage or car loan, you would be better off to keep those additional cards until you’ve been approved for financing.

How To Cancel Your Card

If you have decided that canceling your card is the best way to go, it’s best to consult the company’s policies on how you actually do it. Some demand the cancellation be in writing while others allow you to do the cancellation over the phone.

If you decide to cancel by phone, it’s not uncommon for the customer service representatives to try and persuade you not to cancel. For about 15 minutes, they’ll do what they can to convince you to keep your account open such as:

- Waiving the annual fee
- Reducing the interest rate
- Offering bonuses
- Including special offers

It couldn’t hurt to hear them out before you go ahead and cancel the card. If they don’t appeal to you and really want to cancel that card, go ahead and do it! You make the ultimate decision on whether or not you keep the card!

Read the next article to learn about credit card help for students.



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