Pros And Cons Of Closing A Credit Card
The biggest benefit of using a credit card is that you can shop now and pay for your purchases later. It's like having a personal credit line that you can dip into any time. Another huge perk of using a credit card is that you can enjoy reward points for your shopping, which you can redeem later on for cashback offers and other gifts. Regular usage of credit cards can help you establish and build your personal credit score.
While credit cards offer an array of benefits, having more cards than you need and improper management of the various cards can severely impact your financial health. If you're having a hard time tracking and managing your credit card debts, then the best way moving forward is to close a few that you no longer use.
Before you decide to close an existing card, you need to be aware of the pros and cons of closing credit cards.
Pros: Protects you from Incurring Potential Debts
One of the biggest traps of using credit cards is that you can build large debts mindlessly. Having multiple credit cards tempts you to overshoot your shopping budget. As a result, you end up acquiring a massive debt from numerous credit card purchases.
If you're finding it challenging to repay your credit card debts, you can close a few cards and maintain only ones that help you build a good credit history. To close a credit card account, reach out to the card issuer. You can find the customer service number printed on the bottom of the card, or look it up online. Place a request to close the card. You will have to repay all balances accrued on the card before you can close it.
Closing multiple cards and using only one or two helps you get back on track and lead a debt-free life.
Pros: Prevents Identity Theft
You may have multiple credit cards in your wallet that you no longer use. That doesn't mean hackers cannot access it. Even though the chances are slim, hackers can steal your card info and use it illegally. To avoid falling victim to credit card identity theft, you can close cards that you don't track regularly.
Pros: Reduces your Overall Debt
When you have multiple credit cards open, it increases the total debt value on your portfolio. This, in turn, increases your debt-to-income ratio (DTI). DTI is the total debt that you owe calculated against your income. Higher the DTI value, it becomes more difficult for you to qualify for loans in the future.
Closing a couple of credit cards that you don't use frequently can reduce the overall debt burden on your income, thereby reducing the DTI. This, in turn, improves your chances of securing a loan.
Pros: Helps you Avoid Extra Expenditures
One of the significant reasons many people close a credit card account is to reduce temptation. Very often, having a credit card tempts people to splurge on luxury purchases that they wouldn't usually do. When you close a credit card, you cannot spend on it, thereby avoiding unnecessary expenditures.
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