Updated on November 21, 2020 Show
Photo: Adam Gault / Getty Images You likely already know your credit card issuer charges monthly interest on outstanding balances on an open credit card. But what if the account is closed? Will you still have to pay interest? Interest is charged on credit card balances that aren't paid in full by the due date. Your credit card issuer won't stop you from closing your credit card while it still has a balance, but closing the account doesn't relieve you of interest payments. Once you close an account, you'll continue to be charged regular interest until you've reached a zero balance. What Closing a Credit Card Really MeansEven though you've closed your credit card, your credit card agreement is still in effect. That means each billing cycle that you still have a balance, a finance charge will be added to your account. The finance charge is calculated based on your balance and your interest rate. NoteThe APR on your credit card balance doesn't change after you've closed your credit card account unless you have a variable APR or the credit card issuer gives you advance notice about the rate increase. What does change when you close a credit card is your ability to make purchases on the card. You'll no longer have access to a credit limit and if you try to use your credit card, the transaction will be declined. You're still responsible for making at least the minimum payment by the due date until the balance is paid in full. If you're late on your payment or you pay less than the minimum, you'll be hit with a late fee. Multiple late payments can result in your interest rate being raised to the penalty rate. How to Reduce or Eliminate Interest Charges on a Closed Credit CardThere are a few ways you can use to reduce or possibly even eliminate the interest paid on a closed credit card account:
If you haven't closed your credit card yet and you're still exploring your options, consider waiting until your full balance is paid off. Closing a credit card won't help with paying off your credit card, since you'll still have interest to pay. However, closing your credit card while it still has a balance can negatively affect your credit score, making it difficult to qualify for other credit cards and loans. The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. The following is presented for informational purposes only. People may choose to close a credit card for a variety of reasons. You may have just gotten a new credit card that has a better rewards program and don’t have a use for your current card. Perhaps your card’s annual fee is coming up and you don’t think paying the fee is worth it. Or, you might be trying to pay down debts and want to remove the temptation to use your card for purchases. But what if your card has a balance on it? Can you close a credit card that still has a balance? Short answer: yes. In most cases, you can close a credit card before you've paid off the remaining balance, but you'll have to continue making payments until it’s paid off. There could also be other repercussions that you should beware of before making your decision. Here's what you need to know. You could still have to pay fees and interestThe terms of your cardmember agreement are still in force while you pay down your balance on a closed account. This means interest can still accrue on the balance, you could wind up with a late fee if you don’t make monthly payments on time, and you may even have to pay the card’s annual fee if it's charged before you pay off the balance. In other words, closing the account will prevent you from borrowing new money, but as long as there's still a balance, you should probably assume that all fees and charges will remain the same until you're paid in full. You may lose a promotional annual percentage rateIf you opened a card with a promotional purchase or balance transfer annual percentage rate (APR), closing your account could cut the promotional period short. The balances’ APRs could revert to a higher APR based on your creditworthiness, and the balances will begin to accrue interest. Some store credit cards offer a deferred interest promotion, which lets you avoid interest charges if you pay off the balance within a specific period. Even if you close the account, if you don’t pay off the balance in full by the end of the period, you may get charged all the interest that accrued from the purchase date to the end of the promotional period. Plus, you’ll continue to get charged interest moving forward. You could lose rewardsIf you have a rewards card that earns points in the issuer’s program (as opposed to a co-branded credit card that lets you earn points in a hotel or airline program), then you may forfeit the rewards if you close your account. When you have several credit cards that are part of the same rewards program, you may be able to transfer your points to a different card to avoid losing them. However, the impact of closing your card depends on the issuer and rewards program. In some cases, the card issuer will give you time to redeem your rewards even after you close your account. And some issuers will automatically credit your account and send you a check if you have any cash back rewards left in your account. Read the fine print on your credit card terms and conditions sheet, which may be available online, to see how closing your credit card could impact your rewards. It could hurt your credit scoreA closed credit card account can stay on your credit report for up to 10 years if it was in good standing when it was closed, or seven years if the account has derogatory marks, such as a late payment. The account can continue to help or hurt your credit as long as it remains on your report. However, closing an account can sometimes quickly lead to a lower credit score because it decreases how much total credit you have to your name. As a result, your utilization rate — the portion of your available credit that you’re currently using —may increase, which can hurt your score. This is one reason keeping credit cards open if they don’t have an annual fee or interest-accruing balance may be a good idea. The impact of closing a card will depend on your overall credit profile. Also, credit scoring models treat closed accounts with a balance differently. FICO credit scores include balances on closed accounts when calculating utilization rates, while VantageScore credit scores do not. A potential alternative to closing your card — switch to a different cardIf you’re planning on closing a card due to an upcoming annual fee, you may have to pay the fee if you’re still paying off a balance. An alternative may be to call the issuer and ask if it could waive the fee, or if there’s a promotion that may offset the fee. For example, there could be an offer to receive a statement credit equal to the annual fee amount as long as you meet certain conditions, such as making purchases that equal the annual fee amount. Another option may be to keep your account open and switch to another one of the issuer’s cards that doesn’t have an annual fee — what’s known as a product change. Your balance will stay with you, and you may have the same APR, but the benefits and rewards program could change depending on the new card. A debt management plan could help you avoid some ramificationsIn spite of some of the potential downsides, if you’re having trouble controlling your spending and paying off debts, closing your credit card could be a good idea even if it still has a balance on it. You may also want to get some outside assistance. Nonprofit credit counseling organizations may offer a debt management plan (DMP) that could help you pay off your debts over the next three to five years. While you may need to close all your credit cards when you begin the DMP, the counseling organization can negotiate on your behalf to try and get late fees waived and reduce the interest rates on your accounts. Connect with a certified credit counselor to see if a DMP could work for you. The consultation is free, confidential, and available entirely online. How do I stop paying interest on my credit card?If you'd like to avoid paying interest on your credit card, you have two options. You can pay off your balance before your grace period ends, or you can apply for a zero-interest credit card that offers 0 percent APR on purchases for up to 21 months.
Is it better to close a credit card or let it close on its own?Credit experts advise against closing credit cards, even when you're not using them, for good reason. “Canceling a credit card has the potential to reduce your score, not increase it,” says Beverly Harzog, credit card expert and consumer finance analyst for U.S. News & World Report.
What happens if I close my credit card account with a balance?You can close a credit card with a balance, but there are a few things to keep in mind. First, by closing the credit card you will no longer be able to use the card to make purchases. Second, you are still responsible for paying off the rest of your balance. Third, the outstanding balance can still accrue interest.
Is there any benefit to closing a credit card?No more temptation to go into debt:
If you are considering closing a credit card, this gives you an opportunity to close the credit card account with a highest interest rate. In the long run, maintaining financial health could be much better for your credit score than the benefits of keeping the card account open.
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Does closing a credit card stop interest
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