Do you think it’s time for you to consider credit card closure? The average American owns around 4 credit cards. But do they actually use every single one of them?
Over the years, it’s common for people to start collecting credit cards. The first one is usually something that we got to help us start building our credit history. Others are acquired for specific purposes. Like maybe you need a credit card for gas so you can earn points and enjoy rewards. A retail or store card works the same way. There are also credit cards that you specifically use for traveling or business-related expenses.
The number of cards that you own would depend on the type of life that you lived. The card may have been useful to you, but you need to check if it still serves its purpose now as it used to when you first got it.
Take a look at your wallet or your purse. How many cards do you have in there? Check each and every one of them. Do you really use all of these cards?
Signs you need to close a credit card account
As you look at all your credit cards, consider certain details about each one. There are specific signs that you need to look for to determine if it’s time for a credit card closure.
It’s important for you to check all of these signs because you cannot just close credit cards whenever you want to. At least, if you don’t want it to have a huge effect on your credit score. There’s a way you can close unnecessary cards so it will have a minimal effect on your score.
But first and foremost, how will you know if you should close a credit card or not? Understanding these signs will help you become a smart credit user.
The fees are more expensive than it’s worth
The first thing that you need to look at is the fees. If you don’t know the fees you pay, you need to get to know it fast! This is one of the things that you need to be aware of. The fees on your credit card will depend on the creditor.
The most common is the annual fees. The higher the rewards of the credit card, the higher the annual fee. If there are no annual fees, that means the rewards are not that attractive.
The other fees that you need to consider are the late penalty fees, cash advance fees, balance transfer fees, foreign transaction fees, over-the-limit fees, etc. Most of these are triggered by the way you use your cards. So if you don’t trigger any of these you don’t really have to worry.
So in truth, what you really have to worry about is the annual fees. If you are not using the credit card and the annual fee is just an unnecessary payment, you are wasting your money on that. You might as well just close the credit card.
APR is too high
This is probably more important than the annual fees. If you have high-interest credit cards, this will cost you a lot of money in terms of the finance charges. This charge is calculated based on your remaining balance and interest rate. The higher both of these are, the higher the finance charge will be. This is why the balance of high-interest rate cards grow faster.
Now you have the option to talk to your creditor and ask them to lower this rate for you. This is possible, but you have to initiate the conversation with the creditor. It will make things easier to negotiate a lower rate if you have a good credit score and you paid your dues on time.
But if they don’t agree with your proposal and you can’t do anything about your interest rate, then it might be time to think about credit card closure.
You don’t need the rewards program
Did you know that 36% of cardholders choose the type of credit card to use because of the rewards? It only comes in second to avoid the inconvenience of carrying cash. But while the reward may have been very attractive when you go the card, it may be different now.
For instance, when you were young and single, you loved to travel. So getting a travel rewards credit card makes sense. But after getting married and having kids, you probably don’t have enough time to travel like you used to. So keeping the same card for the family’s yearly trip may not be worth it. You may be better off using a different credit card that will give you a combination of rewards that you can take advantage of more often.
If you find such a card, you can opt for a credit card closure.
Alternative to credit card closure
As mentioned, closing a credit card will have an effect on your credit score. It’s one of the things that is considered when the credit score is calculated. The trick to close your credit card and let it have a minimal effect on your score is to make sure you don’t close more than one at the same time.
But if you really want to keep your cards, there are alternatives that you can use to avoid credit card closure.
Switch to another credit card from the same issuer
One option is to talk to your creditor and ask them if you can switch to another type of credit card. Tell them that you don’t really want to close the credit card – you need a different one that will suit your new spending habits.
This is not an unusual request so you can expect that the creditor will be very cooperative. The new account will also not involve a hard inquiry on your credit report – so it will keep your credit score from being negatively affected.
Transfer the balance to a lower-interest card
If you will get another card, make sure that it has a lower interest rate. That way, it won’t have to cost you a lot to pay it off. This is an ideal alternative for those who simply have a problem with their high-interest credit cards.
When you transfer to a lower interest rate card, make sure you get one that offers 0% interest for a specific period. That way you can pay off your debts without worrying about the interest rate being added to your balance. If you can pay the debts within a specific period, you won’t have to pay any interest on what’s left of your debts.