Cancelling a credit card isn’t just a matter of cutting it up and disposing it. There are a few things you need to know and do.
Reasons to cancel a credit card
Why do people cancel their credit cards? While different people have different reasons, they usually boil down to the following:
Reason #1: To simplify one’s finances
It’s normal for people to own more than one credit card and there’s nothing wrong with that. The potential hitch is that this can make one’s finances a bit more complicated. It’s easy enough to forget the due date and minimum payment due for just one credit card per month, let alone two or even five. To deal with this problem, others simplify their finances by cancelling their credit cards.
Reason #2: To avoid the fees
Credit card charges can be expensive–particularly the annual fees. Others deal with this problem by asking their card providers to waive the fee, but not all acquiesce. Because of this, cardholders sometimes choose to cancel their credit cards.
Reason #3: To avoid the temptation
Some consumers–especially those deep in debt–try to control their spending by stuffing it in the bottom of their drawer or freezer. Others cut up their credit cards with scissors or shove it in a shredder.
The problem with these methods is that the card information is saved in their browsers and online shopping accounts. Even after scrubbing all the data, cardholders may still have these details committed to memory. Thus, they can still get tempted.
To avoid the temptation once and for all, people simply cancel their credit cards. It’s certainly more effective.
Reason #4: To switch to another card provider
Maybe we kept a certain credit card because we were able to maximise its rewards; or perhaps it’s the low interest rate. But if these circumstances change, people usually decide to switch to another card that offers what they want and cancel the existing one.
How to cancel your credit card
Here are the steps you need to carry out to cancel your plastic.
Step #1: Cash in the rewards
Yes, this step is entirely optional but if your account is eligible for certain rewards, it’s advisable that you redeem them. But if you’re trying to avoid fees or reduce your spending, just make sure you won’t have to spend any further to do so.
Since rewards redemption schemes are governed by schedules and guidelines, take the time to visit your card provider’s website for the pertinent details.
Step #2: Settle the balance
You can’t cancel your credit card if the account has an outstanding balance; the debt must be paid in full first. Take note that interest may have been charged before you paid the total amount stated in your latest bill. As a result, your balance may have continued to accumulate afterwards. This means you have to confirm that the balance is indeed zero.
To avoid this problem, ask the card provider to freeze your account until you settle the balance.
If you’ve found a better credit card, you can transfer your balance there. Bear in mind, however, that while balance transfers won’t affect your credit rating, it involves an automatic credit check. If you apply too many times, you might get turned down.
Step #3: Deactivate its direct debit payments
Direct debit is a payment system where organisations you want to pay are permitted to debit your account directly at regular intervals. If you use the credit card you wish to cancel for direct debit payments, now would be a good time to disable it.
Don’t wait too long to cancel any direct debits; a deactivated credit card can still be reactivated by a direct debit. If this occurs, you have to settle the balance again.
Step #4: Inform your card provider over the phone
After performing the previous steps, you should be ready to cancel your credit card. The best way to proceed is to call your card provider’s customer service hotline and tell them your intention. Expect the customer to convince you to do otherwise.
Step #5: Send a letter afterwards
More often than not, your card provider will require you to send them a letter (the customer rep should provide the email address) requesting them to close your account. They do this to confirm that it’s really you who’s closing the account as some identity thieves do this as well.
The letter should include your account details, your signature, and the date. Some financial institutions might ask for a physical letter so ask for their address. On your end, consider asking for confirmation that the account has been closed.
Step #6: Go through your card statement
While waiting for the card provider to officially cancel your credit card, check your card statements for any payables that you suddenly have to deal with.
Step #7: Receive the confirmation letter
Some financial institutions may send a confirmation letter, while others will just mail you a statement indicating the account’s closure. If you like, you can get a free copy of your credit report just to ensure that the card is officially cancelled.
Step #8: Destroy the credit card
You might be asked to hand over the cancelled card so that the card provider can destroy it for you. This is actually a good idea because it’s safer than simply throwing the card into your rubbish bin. Even if you cut it up yourself, identity thieves may be able to use the card, especially if you didn’t destroy the parts that make the card function, namely the security chip and magnetic strip.
As a precaution, don’t put all the pieces in the same garbage bag. If you have a shredder, use it to completely destroy the card.