Banks regularly introduce new variants of credit cards with enticing features, like waived annual fees or welcome bonus cash rebates. If you keep taking up these offers, you may soon end up with more problems.
For one, keeping track of multiple cards can be difficult, with different billing dates that you need to be aware of.
Even if you are able to remember, having too many credit cards may be detrimental to a healthy spending habit as you find yourself scrambling to meet different minimum spending requirements every month.
At some point, you could realise that you have too many cards and that you want to get rid of one or more.
Whatever, the reason, you should always remember that cancelling a card is not just a matter of cutting it into two and sending a cancellation request to your bank. There is more than meets the eye.
This article discusses some of the more important precautions that help you save money and a great deal of psychological pain if and when you decide to cancel a card or two.
1. Pay off your balance
You must pay off all accumulated dues before cancelling a credit card. That’s not just the amount on your last statement. There are also “pending” due amounts that you have spent during the current billing period that are due to appear in your next month’s statement.
Failing to do so can have a very big impact on your credit score and your ability to engage with a bank for other services in the future, like home loans, car loans or even other credit cards.
If you don’t have enough cash on hand to pay off your balance, then you should consider getting either a debt consolidation plan or a balance transfer with a bank. These products are designed to help you make credit card repayments more easily over a course of a few months to a few years.
By breaking up your repayment into small portions spread over a long period, you can more easily manage your card balance repayment while still cancelling your card immediately.
Furthermore, some banks continue to levy charges on credit card accounts that have been closed if your account carries a credit balance for more than a year after closure. Although the amount that the banks charge is usually small, it’s best to double-check that your account is reduced to a nil balance before closure.
2. Have a credit balance? Here’s how to get it back
The correct way to withdraw a credit balance in your card account is to request the bank to pay you. Don’t make the mistake of logging on to your card account and transferring the money out.
If you do take money out of your card, the bank could consider it as a utilisation of the credit card cash advance facility. This usually attracts a very high interest rate.
Instead, you can simply request the bank to issue a check to receive any credit balance you may have left on your card.
3. Redeem your miles and points
In their hurry to cancel a card, some individuals put off redeeming their points or miles till later. However, the problem is that card issuers will forfeit the points you have accumulated at the time of cancellation. It would be a waste to lose out on these.
Therefore, you should always remember to claim the rewards you are entitled to before communicating your intention to cancel your credit card. By doing this, you will avoid having to convince the bank to reinstate your points.
4. Alter billing instructions
If you have set up any recurring payment instructions from your credit card, cancelling your card will automatically result in these payments being discontinued.
Therefore, you should not forget to reset your automatic payment schedule with a different card right away.
5. Damage to your credit score
Lastly, closing your credit card account could have the unintended effect of lowering your credit score. When you cancel a credit card, your total available credit limit drops by the amount of the limit on the cancelled card.
This means that, if you have any other outstanding balances when you cancel one of your cards, your total credit utilisation limit will go up. This could affect your credit rating adversely.
6. Don’t decide in haste
If you want to cancel a card because you don’t use it anymore or because its annual fee is very high, you should first think through all the implications of your decision.
Cancelling your oldest card or one that has a high credit limit may not be the best decision to make. Bear in mind that once you cancel a card, you cannot reactivate it.
If you have decided to get rid of a card that does not really carry any benefits that you can utilise, it may be a good idea to find a replacement. There are several cards that have generous reward programmes, as well as cards that require no annual fee that might better fit your needs.
This article originally appeared in appeared on ValuePenguin, and later on thenewsavvy.com.
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