5 Times You Should Cancel a Credit Card, According to Financial Experts
In some cases, it can be best to drop it from your wallet entirely.
Having a credit card in your wallet may not be an absolute necessity, but it can certainly make life a lot easier. Besides being the best payment option for certain purchases, they can also help you save money when buying necessities and provide some insurance against theft, fraud, or bogus sellers. But even if you've got a good reason to carry it around, that doesn't necessarily mean you should never get rid of one. Read on to learn the times you should actually cancel a credit card, according to financial experts.
When it has a high annual fee.
At their most basic level, credit cards make it easier to pay for purchases without having to carry around vast sums of cash. But besides the convenience, many memberships offer cardholders access to significant perks. Unfortunately, this is rarely offered for free and can sometimes stand as one of the top reasons to drop a card from your wallet.
"Many cards can charge an annual fee—especially those that offer rewards or other benefits," says Robert Farrington, founder and CEO of The College Investor. "If you're not getting the value from the benefits, it might be time to cancel the card. For example, maybe you've changed your spending habits, travel goals, or other options: Given some of these fees could be upwards of $695 per year, you really need to make sure that you're making use of the perks."
However, canceling it outright may not be the best option in this scenario. "You might be better served by calling the credit card issuer to request transferring your account to a free card that has fewer or no rewards or cash back," says Riley Adams, a certified public accountant and founder of Young and the Invested. "Doing so can keep the account open without taking a hit to your credit score that commonly comes from closing an account while still saving you on annual fees."
When you want a new type of credit card.
Depending on how you spend, it can sometimes make sense to carry multiple credit cards from one company to maximize the benefits offered by each one. But while this can often be a great way to save money and reap the rewards, there's only so far you can take this swiping strategy.
"Certain credit card companies place limits on how many cards you can have with them," Ben Walker, personal finance and credit card expert at FinanceBuzz, tells Best Life. "If you're already at that limit and you want a different card, you might have to make a product change or cancel an existing card to be eligible for a new credit card."
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When you're having trouble controlling your spending.
Even though they can be a great way to help organize your finances and streamline your budget, all credit cards come with one inherent danger: The ability to overspend. And if you find yourself unable to hold yourself back from swiping on items you can't afford, experts say it's a clear sign you should cut yours up.
"Credit cards can help you improve your credit score while providing valuable rewards and benefits," says Walker. "But they're not worth it if they lead you into unmanageable debt through uncontrolled spending."
Others point out that getting rid of a card can still be a good idea if you're even just feeling the urge to go on a shopping spree. "If having an open credit line makes you anxious and gives you temptation, close it up," says Chris Ratigan, financial expert and vice president of business development at Monterey Financial Services. "The option falls off, and that's when you truly start to be selective with your purchases: 'Do I really need this or is it a big want?'"
When you're dealing with a problematic joint account.
Married couples typically share everything from their home to bank accounts with one another. But if you're planning on cutting ties with your significant other, you might want to consider dropping any joint cards along with changing that Netflix password.
"In instances where you've experienced a change in marital status, it might make sense to cancel credit cards you once shared jointly," says Adams. "Because your union has dissolved, you likely won't want to have a joint credit card shared with your ex-spouse."
But besides break ups, this can also apply to any offspring learning the ins and outs of responsible spending. "If you have your teen attached to your account and they are abusing the credit line, take your name off and have them start fresh," says Ratigan. "No one wants to pay for someone else's expenses, especially if it doesn't benefit you."
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When you already have a well-established credit history.
Staying on top of your credit score can be confusing, thanks mainly to the system's mysterious and seemingly contradictory rules. But if your number is already in a good place, there are some cases where you can likely get away with ditching a card you no longer want or need.
"You might want to cancel a credit card because you're fed up with the issuer or simply have too many cards to juggle," says Walker. "As long as the card you want to cancel isn't one of your oldest credit accounts and you already have a high credit score, you shouldn't see a significant impact on your credit score for canceling one card."
Best Life offers the most up-to-date financial information from top experts and the latest news and research, but our content is not meant to be a substitute for professional guidance. When it comes to the money you're spending, saving, or investing, always consult your financial advisor directly.