Closing a Credit Card
June 4th, 2020
I recently was talking with a client who wanted to close her credit card and she mentioned that she had paid her credit card balance down to 0, yet when she received the following months statement it still showed that she had a small balance. I explained to her that interest accrues daily and much like rust, it must be completely removed. The way to do this is by calling the credit card company, or lender for a loan, and get a payoff balance. Then you know with certainty that you’ve completely reduced your debt to 0; otherwise, even if you have a penny balance the lender will continue to charge you daily interest and the debt has not been completely paid off.
Unfortunately, many people do not know this and continue to pay needless interest to lenders, increasing borrower’s costs. The most important factors in reducing interest are the following factors: The interest rate, the size of the debt and the length of the debt. Here’s several examples:
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As can be seen, the actual real costs dramatically increase as evidenced by the 30% interest rate, $1,000 balance, 10-year loan. Please use money wisely by limiting the drivers that increase your interest costs and ask yourself before signing, “Is it worth paying for this item when it actually costs far more than it’s worth?”. Perhaps you can save for a larger down payment, buy a used product, or forgo the item until a future time.
If you would like a financial coach to assist you in creating a plan for paying down your debts, or for any other financial situations, you can apply here.