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What happens if you close a credit card that still has a balance?

Credit card cut in two

The following is presented for informational purposes only.  

People may choose to close a credit card for a variety of reasons. You may have just gotten a new credit card that has a better rewards program and don’t have a use for your current card. Perhaps your card’s annual fee is coming up and you don’t think paying the fee is worth it. Or, you might be trying to pay down debts and want to remove the temptation to use your card for purchases. 

 But what if your card has a balance on it? You likely don’t need to pay off the balance before you close your card account, but you will have to continue making payments until it’s paid off. There could also be other repercussions that you should beware of before making your decision. 

You could still have to pay fees and interest 

The terms of your cardmember agreement are still in force while you pay down your balance on a closed account. This means interest can still accrue on the balance, you could wind up with a late fee if you don’t make monthly payments on time, and you may even have to pay the card’s annual fee if it's charged before you pay off the balance. 

You may lose a promotional annual percentage rate 

If you opened a card with a promotional purchase or balance transfer annual percentage rate (APR), closing your account could cut the promotional period short. The balances’ APRs could revert to a higher APR based on your creditworthiness, and the balances will begin to accrue interest. 

Some store credit cards offer a deferred interest promotion, which lets you avoid interest charges if you pay off the balance within a specific period. Even if you close the account, if you don’t pay off the balance in full by the end of the period, you may get charged all the interest that accrued from the purchase date to the end of the promotional period. Plus, you’ll continue to get charged interest moving forward. 

You could lose rewards 

If you have a rewards card that earns points in the issuer’s program (as opposed to a co-branded credit card that lets you earn points in a hotel or airline program), then you may forfeit the rewards if you close your account. When you have several credit cards that are part of the same rewards program, you may be able to transfer your points to a different card to avoid losing them. 

However, the impact of closing your card depends on the issuer and rewards program. In some cases, the card issuer will give you time to redeem your rewards even after you close your account. And some issuers will automatically credit your account and send you a check if you have any cash back rewards left in your account. 

Read the fine print on your credit card terms and conditions sheet, which may be available online, to see how closing your credit card could impact your rewards. 

It could hurt your credit score 

A closed credit card account can stay on your credit report for up to 10 years if it was in good standing when it was closed, or seven years if the account has derogatory marks, such as a late payment. The account can continue to help or hurt your credit as long as it remains on your report. 

However, closing an account can sometimes quickly lead to a lower credit score because it decreases how much total credit you have to your name. As a result, your utilization rate — the portion of your available credit that you’re currently using —may increase, which can hurt your score. This is one reason keeping credit cards open if they don’t have an annual fee or interest-accruing balance may be a good idea. 

The impact of closing a card will depend on your overall credit profile. Also, credit scoring models treat closed accounts with a balance differently. FICO credit scores include balances on closed accounts when calculating utilization rates, while VantageScore credit scores do not. 

A potential alternative to closing your card — switch to a different card 

If you’re planning on closing a card due to an upcoming annual fee, you may have to pay the fee if you’re still paying off a balance. An alternative may be to call the issuer and ask if it could waive the fee, or if there’s a promotion that may offset the fee. For example, there could be an offer to receive a statement credit equal to the annual fee amount as long as you meet certain conditions, such as making purchases that equal the annual fee amount. 

Another option may be to keep your account open and switch to another one of the issuer’s cards that doesn’t have an annual fee — what’s known as a product change. Your balance will stay with you, and you may have the same APR, but the benefits and rewards program could change depending on the new card. 

A debt management plan could help you avoid some ramifications 

In spite of some of the potential downsides, if you’re having trouble controlling your spending and paying off debts, closing your credit card could be a good idea even if it still has a balance on it. 

You may also want to get some outside assistance. Nonprofit credit counseling organizations may offer a debt management plan (DMP) that could help you pay off your debts over the next three to five years. While you may need to close all your credit cards when you begin the DMP, the counseling organization can negotiate on your behalf to try and get late fees waived and reduce the interest rates on your accounts.

Article written by Louis DeNicola. Louis is a personal finance writer with a passion for sharing advice on credit and how to save money.

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