6 precautions to take when canceling a credit card, Lifestyle News
Canceling a credit card is not as easy as it looks. Read our guide to make sure you’re making the right decision and follow the steps to successfully closing your account.
Banks regularly introduce new credit card variants with enticing features, like annual fee waiver or $100 cash back welcome bonus. If you keep accepting some of these offers, you may soon find yourself with more cards than you need or can handle.
Even if you’re able to, having too many credit cards can be detrimental to a healthy spending habit, as you find yourself scrambling to meet different minimum spending requirements each month.
If and when you decide to cancel a credit card, keep in mind that it’s not just about cutting it in half and sending a cancellation request to your bank. Here we discuss some of the most important precautions you can take to save money and a lot of stress if and when you cancel a credit card.
1. Pay off your balance
First, you should always settle any outstanding balance on your card before canceling it. It’s not just the amount that appears on your last credit card statement.
There are also recent “pending” charges that have not yet appeared on your credit card statement. Failure to do so can have a huge impact on your credit score and your ability to commit to a bank for other services in the future, such as home loans, car loans, or even other cards. credit.
If you don’t have enough cash to pay off your balance, you should consider getting either a debt consolidation plan or a balance transfer from a bank. These products are designed to help you make credit card repayments more easily over a period of months to years.
This makes balance transfer loans and debt consolidation plans ideal for consumers who need to get rid of their credit cards but are unable to do so because they don’t have enough money to pay off their debt. balance immediately. By dividing your refund into small portions spread over a long period of time, you can more easily manage paying off your card balance while canceling your credit card immediately.
Additionally, some banks continue to charge credit card accounts that have been closed if your account has a credit balance for more than a year after closure. Although the amount charged by banks is usually small, it is best to verify that your account is reduced to a zero balance before closing.
2. Collect your credit balance
The correct way to withdraw a credit balance from your account is to ask the bank to pay you. Don’t make the mistake of logging into your card account and transferring the money. If you withdraw money from your card, the bank may consider this to be using the credit card cash advance facility.
This typically attracts an interest rate of up to 28% per annum, in addition to a one-time service charge of up to 6%. Instead, you can simply ask the bank to issue a check for any credit balance you may have on your card.
3. Redeem your rewards
In the rush to cancel a credit card, some people may forget to redeem their points or miles. However, the problem is that your existing points are lost upon cancellation. If you’ve used some of the best credit cards in Singapore for a few years, the miles you’ve accumulated could be worth thousands of dollars.
This is why you should always remember to claim the rewards to which you are entitled before communicating your intention to cancel your credit card. By doing so, you will avoid having to convince the bank to reinstate your points.
ALSO READ: 13 best credit cards with no annual fee (2022)
4. Update billing instructions
If you have set up recurring payment instructions from your credit card, canceling your card will automatically stop those payments. So don’t forget to immediately reset your automatic payment schedule with your subscriptions with another card.
5. Monitor your credit score
Finally, closing your credit card account could have the unintended effect of lowering your credit score. This is because when you cancel a credit card, your total available credit limit decreases by the amount of the limit on the canceled card.
This means that if you have other outstanding balances when you cancel one of your cards, your total credit usage will increase. This could hurt your credit rating.
Here is an example to demonstrate the mechanics of this process. Let’s say you have two credit cards – card 1 and card 2 – and you intend to cancel card 1. If you have an outstanding balance on both cards, the table below illustrates what could look like your credit usage before canceling card 1.
|card limit||Use of credit||Usage percentage|
|Card 1||$5,000||$500||10 percent|
|Card 2||$7,000||$2,000||29 percent|
If you cancel Card 1 in this scenario, your credit usage drops from 21% to 29%, a factor that could lower your credit score despite your lower total balance.
Another mistake people often make is canceling an old credit card. You shouldn’t do this on a whim, as maintaining a long history of regular payments can help boost your credit score.
|card limit||Use of credit||Usage percentage|
|Map 2||$7,000||$2,000||29 percent|
ALSO READ: 5 Overlooked Credit Card Traps You Could Be Falling Into
Don’t decide in haste
If you want to cancel a card because you are no longer using it or because the annual fee is very high, you should first consider all the implications of your decision. Canceling your oldest card or one with a high credit limit may not be the best decision. Remember that once you cancel a card, you cannot reactivate it.
If you’ve decided to get rid of a card that doesn’t really have any perks you can use, it might be a good idea to find a replacement. There are several cards that offer generous rewards programs, as well as cards with no annual fee that might suit your needs better.
This article was first published in ValueChampion.