Closing A Credit Card with a Balance?
I’m in over my head with credit card debt, especially because I have such a high interest rate. I currently have a card with Bank of America. They will close my account to decrease my interest rate to 5% making my monthly payment much lower. The card would then be paid off in 5 years.
The card is close to maxed out at $12,000. The credit line is $13,700.
Because the card is currently maxed out, would it harm my credit score significantly if I closed the account? My currentl credit score 700. What is the potential damage?
If you are in over your head, you can’t afford to take on any new lines of credit. So don’t worry about your score.
About a third of your score is based on the ratio of credit card debt to limit. Carrying balances of more than 30% hurts your score. If you are already maxed out, the debt percentage is killing your score. Closing the account which closes the limit, won’t make your score any worse. When you get the credit card debt paid off, your score will rebound.
Take advantage of that 5% special offer. Not all credit card companies will make that kind of offer.
You could also check with a NFCC credit counseling service: http://www.nfcc.org/. These are legit, non-profit companies that offer debt management programs for a nominal fee. They negotiate lower interst and payments so you can pay off your debt. If you have other credit cards, you may want to go thru the program and work on all of them.
When you complete the debt management program you will have decent credit.