Can You Close a Credit Card With a Balance?

Credit card offers are as endless as the universe and corny dad jokes.

Whether you’re banking, shopping online, or just settling into a seat on an airplane, financial institutions line up to sell you on the idea of low introductory rates, bonus points, and cash back.

It’s no wonder so many people carry more credit cards than they realistically need and even less surprising that managing escalating credit card debt might tempt them to close some accounts even if those cards still carry an outstanding balance.

After all, 50 million Americans carry credit card balances from month to month at interest rates that can turn a financial pothole into an abyss.

Consumers might close a credit card they still owe for various reasons, including financial management, avoiding annual fees, or simply to improve their credit profile.

But the decision to close a credit card with a balance isn’t one to take lightly and might in fact be counterproductive.

“If someone is considering closing a credit card with a balance, I would advise them to first contact customer support to inquire if closing the account will affect the terms of the outstanding balance,” Phillip Parker, founder of CardPaymentOptions.com, said.

“In some cases, closing a revolving credit account while it has a balance could affect how quickly the balance needs to be repaid, or the interest rate. Both of which could increase the amount of the monthly payment they are required to make.”

Understanding Credit Card Balances

A credit card balance is the amount you owe the card issuer for purchases made with the card and other transactions plus any applicable interest or late fees.

A revolving line of credit allows you to access money with your card up to a certain limit.

People with multiple credit cards and other bills that often leave them one emergency away from a financial avalanche can lose track of statement balances and sometimes confuse statement balances with current balances.

A statement balance is like a snapshot of what you owe at any time. It’s the balance on the card when the statement closes.

A current balance is what you owe the issuer for all unpaid activity on the card. If your statement balance is $400 and you’ve spent $200 since the date the statement ended, you’re on the hook for $600 to the card issuer.

With the average credit card interest rate in America in 2024 of approximately 21%, credit card holders who don’t or can’t pay their cards in full and watch the amount owed keep growing month to month might decide that closing an account is their only recourse.

“(But) remember that closing the card does not release you from the obligation to pay off the balance,” said Erika Kullberg, attorney, personal finance expert, and founder of Erika.com. “Interest will continue to accrue until the debt is repaid in full.

“It is generally advisable to leave an account open until the balance is fully paid off, unless (the reason for closing it is) to avoid an annual fee or something similar.”

Reasons for Closing a Credit Card with a Balance

Why would you close a credit card with an outstanding balance if doing so doesn’t make the debt disappear and doesn’t stop the accrual of interest?

“There are a couple of reasons why closing an account may make sense,” said Matthew Goldman, founder of Totavi whose CardsFTW newsletter focuses on the credit card industry.

“First, if you are having trouble controlling your spending, closing your account prevents you from making new purchases, allowing you to control your balance. Second, a credit card may change its terms. If you don’t agree to changes in terms, you can keep the old terms if you close the account.”

Common reasons people choose to close a credit card with a balance include:

• High annual fees
• Poor customer service
• A better credit-card alternative
• A desire to simplify their financial lives

Such a decision could be part of a personal financial strategy or in reaction to a divorce or job loss.

“It can eliminate the ability to accumulate more debt on the card,” Parker said. “Closing an unused account can also just help bring peace of mind by simplifying finances and reducing clutter, making it easier to manage any other remaining debts.”

Can You Close a Credit Card with a Balance?

You can close a credit card with an outstanding balance by calling your credit card company and following up with a written notice.

Before you take that step, it’s important to first read the terms of your agreement with the credit card company. And just know that in closing the card, you will be losing whatever rewards you earned.

Keep in mind you must still pay the outstanding balance, and the interest doesn’t stop accruing just because you closed the account.

Keeping the card open while you pay it off makes more sense since closing accounts that carry a balance could hurt your credit score by impacting the length of your credit history and your credit utilization rate.

Implications of Closing a Credit Card with a Balance

Closing a card, especially one you’ve had for a long time, could negatively impact the average length of your credit history, a factor that makes up 15% of your credit score.

Another (even greater) factor in your FICO score is your credit utilization rate – the percentage of available credit you’re using on your cards.

Closing a card lowers the amount of credit available to you but not the balance owed.

Joe DiSanto, financial consultant, and founder of Play Louder, offers an example.

“If you have three cards with a 30k total of available credit and have 20k used, that’s 67% usage,” he said. “That isn’t good for your credit score. If you can manage it, you want your usage to be at most 25%. So, if you close a card, you reduce your available credit and de facto increase your usage percentage.”

It could make far more sense to convert your credit card balance to a personal loan since credit card interest rates can be double the rate of a personal loan.

The catch for some credit card holders is that consolidating credit card balances and paying them off with a personal loan typically requires a minimum FICO score of 650.

Alternatives to Closing a Credit Card with a Balance

Closing a credit card with an outstanding balance should be, if not a last resort, a choice you only make after investigating alternative ways of paying off debt faster.

For those with good credit, a home equity loan line of credit or a debt consolidation loan could serve them better than closing an account.

Those with less than good credit still have better choices available than closing an account, such as a debt management program administered by a nonprofit organization.

A debt management program consolidates your monthly debt payments into one payment at a substantially lower interest rate. Nonprofit credit counseling agencies have agreements with card companies that reduce the interest rate to around 8%, sometimes even lower.

DMPs usually take 3-5 years to eliminate all debt and are a good alternative for those who can’t see their way clear of mounting financial obligations.

Others might pursue a balance transfer card or negotiate a lower interest rate with their current card issuer or inquire about a payment plan to pay off the balance.

“Balance transfers often include periods of low to 0% interest for a period of time as an incentive to move the balance,” Parker said. “When utilized correctly, this method can make it easier to pay the debt off while also saving on interest charges.”

Once the introductory period on balance transfer cards expires, the interest rate could jump anywhere from 19-29%. Goldman points out that the fee for opening a balance transfer card is typically 3%-5%.

His recommendation for those considering closing a card with an outstanding balance?

“Pay the balance off first, then close the account, or pay the balance off and freeze the card so you don’t put new charges on it,” Goldman said.

How to Safely Close a Credit Card with a Balance

There is a strong correlation between the number of people with mounting credit card debt and those who don’t pay close enough attention to their credit score.

Since closing a credit card with an outstanding balance typically impacts your credit score, it’s imperative you take steps to safely close that account by protecting your credit score as much as possible.

• Read the terms of your agreement with the credit card company to eliminate any surprises stemming from closing your account.
• Call the credit card company. You may learn something about the agreement you missed in the fine print.
• Follow up with a written notice.
• Factor in the rewards earned on the card. You will lose those when you close the account.
• Ask for written confirmation of the account balance and closure agreement.
• Have a plan to pay off the balance as quickly as possible to avoid interest accumulation and any other late fees.

It’s important to monitor your credit report to ensure the account closure gets reported correctly since your credit score is at stake.

Tips and Advice

Financial advisor and author Suze Orman once said, “The world does not need another credit card.”

With credit card debt suffocating so many Americans, it’s hard to argue that point. Making credit card interest payments is the definition of throwing good money after bad.

What people need far more than another credit card is a plan to manage their debt:

• Pay attention to your credit score. After all, the lower the score, the higher interest rates you’ll pay across the board.
• Stick to a monthly budget as best you can. Include an emergency fund if possible.
• Pay off your card every month if possible. If not, pay more than the minimum.
• Review your credit card statements monthly. Did you really need all those purchases you made?
• Pay on time. Late fees add up and late payments damage your credit score.
• Consult a financial planner for help.
• Consider nonprofit credit counseling as a way to help with all of the above and finally get your financial health in order.

Closing Your Credit Card Responsibly

Not all credit card debt is directly traceable to impulse purchases. The road to debt can be paved with good intentions that are sabotaged by job loss, divorce, and financial emergencies.

The temptation to close credit cards with outstanding balances may give you peace of mind temporarily but that’s fleeting once you realize you still owe what you owe and the unpaid amount is still accruing interest.

Canceling cards is often indicative of deeper financial issues that aren’t likely to get resolved without targeted planning.

The far better strategy is to consult with a financial advisor or to explore resources for managing debt effectively once and for all through nonprofit credit counseling.

A credit counselor can advise you on the best course of action to get credit card debt under control and devise a debt management plan that can put you on the road to recovery by helping you address the root causes of your financial problems.