When you have a real problem with compulsive spending, the people around you might have already started a campaign to encourage you to destroy your credit cards so that you can go cold turkey. And depending on where you are at, you might feel that it is very logical action to take to get yourself out of a bad patch in life.
Credit cards do have benefits that make us happy, but on other times, they can be a source of problems.
On the other hand, it is perfectly normal to want to close your accounts even when you don’t have any financial problems. Sometimes, from reviewing your financial situation, you would find that you are holding onto too much credit.
For clarity, I want to mention that when I refer to accounts, I’m talking about the credit card accounts.
Cutting up your credit card is not the only way to close your account. In fact, cutting it up has nothing to do with cancelling your card. You can still bill transactions to it online anyway. And if you call up the bank for a new card, they will send it to you in a jiffy without requiring you to fill up new applications forms.
So what should you do?
There is no correct way to do it. But when you have to do it, here is a guide to follow.
Go slow and pay off balances
In case you run into cash flow problems, it will serve you well to cancel 1 card at a time. A sudden closure of all cards might leave you unknowingly vulnerable to unforeseen circumstances.
From a credit report point of view, it might also look alarming to lenders when it can be observed clearly that you are closing everything at one go.
Start closing those with annual fees. Remember to pay off any outstanding balances before going ahead. It does not paint a good picture of you at all when accounts are closed with money owing.
Call the bank
Banking hot lines operate 24 hours a day these days. You can call at anytime. But to avoid the rush hours traffic, you might want to choose a timing when most people are asleep. You would know how helpful this tip is if you had ever been on hold for half an hour just to speak to someone.
Some people insist that banking customer service always try to talk consumers out of cancelling their cards. The really crafty ones even try to upsell you something else. But from my experience, it feels more like they are very happy to close accounts which people don’t want.
If you run into a pushy staff who keeps trying to change your mind. Just insist and assert your decision. Be direct. The more you explain yourself, the more questions will be thrown in your direction. Write down the name of the representative chatting with you.
Send a written letter
I’m not a legal expert. So I don’t really know when a bank requires a written confirmation, and when it does not. There doesn’t seem to be a consistent practice in the industry. Sometimes, hardcopy letters are required for the most basic of products, and sometimes just a verbal instruction will settle everything.
To ensure that your account is close, send in a written letter to the card issuer. Remember to include your name, address, card number, your contact number, reference to the phone call you made, and the date. At least with this documented, any charges from now on is something that you have not authorized. If fraudulent charges are made on your card after this, you have to evidence that it is the bank’s fault for allowing transactions on the card even after you have made a formal request to suspend and close it.
Review your personal credit report
It can take ages for your credit report to update an account closure. The reason why you want to make sure that your credit record is updated is because you don’t want to run into any credit problems should you be applying for a big loan facility in future.
For example, if you are getting a mortgage, your loan quantum and interest rates could be negatively affected by undesirable credit. You might be able to push the credit bureau to update their records at that time. But by the time it eventually gets done, you might have missed the property closing, or that you were forced to accept less desirable mortgage terms as there was not enough time to get everything sorted out.
So do at least make a check on your credit about 8 weeks after making your request to cancel a credit card.
There are different opinions on whether canceling credit cards will affect your credit score. Common sense tells us that if you close an account without having any outstanding balances owing, you would be fine.
Gloriously cut up your card
Once the closure is reflected in your credit report, you can now cut up your card with absolute conviction.