Want to Close Your Credit Card? Compare the Benefits and Drawbacks

Thinking of closing a credit card? You may want to do this for various reasons like maintaining your financial health, moving to a new card with better features, keeping yourself from overspending or more. 

A credit card offers great convenience when it comes to paying bills both online and offline. It functions like a buy now pay later facility and makes managing your finances easier. However, it is necessary to manage credit cards with responsibility. If you have multiple credit cards or are unable to manage usage, you can opt to close your credit card. Analyse the benefits and drawbacks to make a decision confidently.

Advantages  

By closing a credit card, you can enjoy these perks:

• Prevents Information Leak: Having a credit card that you no longer utilise can be misused by hackers to get your personal information. Such a card can prove to be a liability and prone to unauthorised payments. Closing such cards can help you lessen your risk of losing important data.
• Helps Maintain DTI: If you have multiple cards, it can increase your debt-to-income ratio. This ratio refers to the total debt you owe against your total income. If this ratio is high, it may be difficult for you to get approval on a new loan. You can close a credit card that is no longer in use and maintain a low DTI.
• Assists in Omitting Extra Expenses: Having a card allows you to access extra credit every month. That can result in increasing your day-to-day expenses as you may be tempted to purchase things that you don’t really need. If you want to cut down your expenses, you can opt to close your card and manage your budget better. 
• Helps Avoid Debt Accumulation: Not paying your card’s dues on time attracts high interest and late payment penalties. This can lead to debt accumulation. Recurring defaults also affect your credit score negatively. So, if you do not need a card or have multiple cards, you can opt to close one of them. 
• Helps Get Your Deposit Back: You may have secured credit cards to build a credit history. After reaching an optimal credit score, you can close your FD-backed card and apply for a traditional one. In this way, you can reclaim your fixed deposit and enjoy the perks related to a traditional credit card.
• Reduces the Liability of Recurring Fees: If you find a card with good benefits and a reasonable or zero annual fee, opting for such a card can be a great choice. Some cards come with hefty annual fees and that can add up to the total cost. Closing your card in such a case can be a smart decision.

Disadvantages 

There are some drawbacks attached to closing a credit card as well. Here are some of them:

• Impact on Monthly Expenditure: When you cancel one or more cards, your credit limit can decrease drastically, which, as a result can impact your way of spending. Since your monthly purchasing power can reduce, you will need to adjust your budget accordingly.
• Increase in CUR: Your overall credit limit decreases when you close one or more credit cards. If you are using your other card’s limit to the maximum, this may result in increasing your credit utilisation ratio. This can affect your credit score for a short duration, hence also affecting your approval for other types of credit.
• Losing Perks: When you close a card, you will lose all the credit card benefits. These include:
• Discounts and cashback on retail purchases
• Travel perks like insurance and lounge access 
• Reward points on eligible transactions 
• Grace period to pay bills 
• Impact on Credit History: Closing a card can hurt your credit history in some cases, especially if you are closing an older account. So, keep an eye on which card you plan to close and act accordingly. 

You can choose to close a card whether you want to reduce your expenses or for better credit management. However, if you have maintained a card for a long time and have been paying bills on time, think again. 

Once your finances are back on track, you can consider boosting your purchasing power with a new credit card. One that helps you manage your usage and keeps your costs down can be ideal in this situation. The One Credit Card can be a fantastic choice if you are looking for a card with zero annual and joining fees. 

You can also access several benefits like earning 5X reward points on your top two spending categories each month, and get a range of deals on travel, shopping, dining out and more. What’s more, its full-stack mobile app helps you set spending limits and stick to a budget with ease. Apply online and get access to the stylish metal card with endless benefits!