What Happens When You Cancel a Credit Card with an Outstanding Balance?
Many individuals encounter situations where they need to cancel a credit card but have an outstanding balance on it. It's important to understand the consequences of such actions to avoid financial repercussions. Here’s what you need to know.
Why You Have to Pay an Outstanding Balance
When you consider cancelling a credit card with an outstanding balance, it’s crucial to understand that you will still be responsible for paying the balance. Closing the account with an outstanding balance does not absolve you of this responsibility. Here’s a detailed explanation:
You will no longer be able to use the card to make purchases after closure. The outstanding balance continues to accrue interest until it is paid off. The credit card company might still pursue payment through collection calls or legal action.Simply put, you should not underestimate the financial obligations that come with closing a card with an outstanding balance.
How to Handle an Outstanding Balance
There are a few steps you can take to manage an outstanding balance when closing a credit card:
Your Balance Notice: The credit card company will send you a notice about your outstanding balance. You can either send a check to the company or make a phone payment by calling their customer service line. Payment Options: Make sure you have a plan to clear the balance. You might want to arrange a payment plan or set up automatic payments from another account. Prepaid Payment: You can also pay your balance online if the credit card company offers this option.Despite your intention to cancel the card, you must ensure you haven't overlooked any outstanding transactions. The card may still operate to process charges until fully paid.
The Consequences of Closing a Card with an Outstanding Balance
The credit card company has the right to pursue you for the outstanding balance, even if you have closed the account. Here are some potential consequences:
You may receive collection calls and visits. The company can take the matter to court, which could result in wage garnishment or freezing of bank accounts to recover the debt.Moreover, the outstanding balance will still accrue interest until it is completely paid off, even after the account is closed. You may also be responsible for any new transactions processed after you closed the account.
Requesting Account Closure
If you want the account to be formally closed, you can request this from the credit card company. However, doing so does not eliminate your financial obligations. Interest and fees will continue to accumulate until the balance is settled.
Conclusion
Closing a credit card with an outstanding balance is a serious financial step. Ensure you understand the financial obligations and the potential consequences before making a decision. If you are unable to pay the balance, consider contacting the credit card company to explore alternatives or negotiate a payment plan.