You probably already know that a credit card company pays monthly interest on outstanding balances on an open credit card. But what if the account is closed?
Will you still have to pay interest?
A credit card issuer does not stop you from closing your credit card while it is still in balance, but closing an account does not free you from paying interest. In that case, people would usually close their credit cards just to get out of paying interest.
When you close your account, you will still be charged for the regular benefit until you reach zero balance.
What a credit card really means
Although you have closed your credit card, your credit card agreement is still in effect. This means that every billing cycle you still have in balance, a financing fee will be added to your account. The cost of financing is calculated based on your balance and interest rate. (The APR on your credit card also does not change after you close your credit card account.)
What makes the change a close with a credit card is your ability to make purchases on the card. You will no longer have access to the credit limit and if you try to use a credit card, the transaction will be declined.
You are still responsible for at least the minimum payment by the due date until the balance is fully paid. If you are late in payment or if you pay less than the minimum, you will be affected by delays.
Multiple late payments can lead to an increase in the interest rate on the penalty.
How To Reduce Or Eliminate Interest On A Closed Credit Card
There are several ways you can use to reduce or even eliminate the interest paid on a closed credit card account.
Transfer the remaining balance to another credit card .
You can avoid paying interest by transferring your balance to a credit card with a 0% interest rate. If you pay the balance before the end of the promotional period, you’re good. You will start paying interest on any balance that remains after the investigation ends.
Negotiate lower interest rates before it closes . A good payment history usually makes it easier to negotiate with a credit card company. However, it may not be so easy to get a credit card company to lower your rate when your account is closed. If you are considering closing your credit card but have not yet, consider seeking a lower interest rate before closing the card.
Pay more on your credit card . You can minimize the amount of interest you pay on your credit card, even without a lower interest rate or a 0% promotional rate by quickly reducing your balance. The lower your balance, the lower your financing cost. The added benefit of higher payments is that your balance pays off faster than if you only paid the minimum.