Being part of a millennial generation, our spending has slowly enveloped new-age expenses such as Netflix or an Amazon Prime subscription. We are buying newer handsets and selling-off the old ones. We want everything to be digitalized and yet opt for COD when paying through the card is available. We apply for multiple Credit cards but find no use of them in due course. Credit cards are a good financial tool that is convenient and aid in emergency spending. But, if not used wisely, it can lead to debts and financial stress

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Catering to our essential expenses require us to plan our monthly income in a smarter way. Some of us own more than one credit card but use only your primary card for all our purchases. A situation may arise where you no longer may find the need for more than one card and would want to close some of your other cards. Sometimes, it might be a good idea to close a credit card instead of plummeting yourself into the abyss of credit defaults. Let’s look at all the aspects involved in closing a credit card.

Credit Card Meaning

A credit card allows you to borrow money from a bank or credit card issuing company to make purchases either online or at a store counter. You make these purchases based on credit provided by the card issuer. You can spend, via the credit card, only up to a certain credit limit. You receive a credit card bill statement at the end of a billing cycle which is usually between 25-30 days. The statement gives a detailed view of your transactions on the card and the amount you owe to the bank or credit card issuer. If you fail to pay the amount within the stipulated payment due-date, then you are levied with a penalty.

You are approved for a credit card based on your income and credit history. So, when applying for a new credit card, always ask yourself if you will be capable to make the monthly bill repayments on-time, or not. Be wise in knowing how much of your income you need to keep aside for monthly expenses, and how much of that would go towards your credit card payments. If you can afford it, then only think of applying for a new credit card. Proper usage of the credit card depends on your self-discipline. Don’t fall for the temptation of credit card offers and end-up owning multiple credit cards. You can increase your credit limit if you have been a responsible credit card user and have the right income. Credit card usage and timely bill payments help you to receive reward points, as well.

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Credit Card Benefits

The advantages that a credit card offers are

1. Tracking for budgetary control

Monthly credit card statements can be used to track your purchases and for reducing the unnecessary splurges.

2. Emergency spend

An advantage of credit card is that you are always covered in case of emergencies. Use it for that one big expense; but, remember to pay it off on time.

3. Convenience

It is easier to move around without a wallet when you pay with a credit card or withdraw money from an ATM (charges apply).

4. Positive credit score

You can build a positive credit score by being a responsible credit card user. Timely payments build your repayment history that is seen positively by the credit bureau.

Credit Card Closing

Closing your credit card involves much more than just snipping it in two. There has to be a valid reason for your credit card is considered for closure. You need to ask yourself, “Do I really need to cancel it?” Some reasons that could make you think of closing your credit card could be

• You struggling with controlling your spending
• Finding the credit card charges and interest rates too high
• Discovering a different card company that offers better rates and a higher credit limit

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7 Credit Card Closure Tips

While approaching your credit card issuer, keep in mind that each issuer has its own credit card cancellation or exit policies. There are certain points you can keep in mind while closing your credit card…

1. Pay-off the balance

You can close your credit card even if you have a pending balance, but your credit score may suffer because the credit utilization will appear high. Credit utilization considers the ratio of your credit limits to credit card balances and is a big factor that goes on your credit report. When you close your credit card with a balance, you will still have to make regular minimum monthly payments until you have paid off the balance. So, the best thing to do is to pay-off the entire balance on your credit card before you close it. This will soften the blow to your credit score.

2. Credit report

After you close the card, request a credit report from the credit bureau. Look for the closure of the credit card. It won’t hurt your score if it is not reported, but an accurate reflection of this will definitely help. Contact the credit bureau, if it is not reflecting in your report. Closed accounts with zero balance and no associated negative information typically remain on the credit history for many years, from the date they are closed.

Prospective credit lenders also look at the credit utilization ratio (comparing the amount of credit used to the total amount of credit availed). This ratio is important because a low credit utilization ratio is a strong indicator of good credit risk. To offset the closure of one credit, you can request a credit limit to boost on another card in order to maintain the ratio. Closing a credit card with a high credit limit could hurt your credit score, particularly if you have high balances or loans.

The age of a credit card account is important. A longer positive credit history is beneficial to your credit score. Therefore, closing an older account, in theory, could have a negative impact. Closing an older account can represent higher risk. If you have a shorter credit history, it will hurt your credit score.

3. Auto payments

Remember to cancel any automatic payments or subscriptions which you have enabled through your credit card. These payments will get reversed and lead to penalties from the card issuer. If you don’t know which automatic payments are going out, go through your credit card statement.

Also, utilize any reward points that you may still have on the credit card. Once the card is closed, you will have to forfeit the unused reward points. Cards with a high annual fee are a good reason to close the credit card. If the card issuer is unwilling to waive-off the annual fee, then it makes sense to close the credit card. Opting for a second credit card is also a good reason to close your primary credit card.

4. Inform the company

When you decide to close the credit card, inform the card company by contacting their customer service team. The representatives will try to talk you into re-considering your decision. They may offer you a lower interest rate or enroll you into a rewards program as an incentive. Note the date and time you make the request for closure.

5. Application for closure

Follow up on the call by submitting a written application to the credit card company. The application has to be simple with your name, address and credit card number (at least the last 4 digits). Mention about the discussion you had over the phone. Keep a copy of the application as proof. Sometimes a written application might not be needed.

6. Clear-off dues

The issuer will cancel a credit card only if there is no pending balance due to them. The customer care executive will update you in case any balance is pending including any interest fee or levied charges. The payment of the balance can be either done in a lump sum or via installments as per your convenience. Paying in installments will still accrue interest on the balance amount. If you are requesting a closure of credit card after the billing date, then this may result in some residual balance not reflecting in your card statement. Pay-off this pending amount and keep the payment proof in case of disputes in the future.

7. Follow-up on cancellation

Most credit card issuers will not let you go easily. The competition prevailing in the credit card segment means you are a source of financial revenue to them. You will be asked to withdraw your cancellation request and offered a reduction in interest to keep you happy. Stick to your request, and insist on getting a written acknowledgment once the cancellation is done. You have to then destroy the credit card by cutting the card across the magnetic strip

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