The average U.S. household has $5,234 in credit card debt, so paying off yours is a huge accomplishment. But now that you’ve paid it off, what are you supposed to do with the card?
Unfortunately, there’s no one-size-fits-all answer to that question. It’s important to know what your options are so you can decide which one is best for you. Here are six things you can do with your credit card after paying it off.
1. Get on a budget
A budget is the most basic financial planning tool you can use. And if you got into credit card debt because of a spending problem, a budget also can help you keep your spending in check.
You can create a budget by using pen and paper, an Excel spreadsheet, or a budgeting app such as Mint or You Need a Budget. Start by calculating your monthly take-home pay and main expenses. Then track the other ways you’ve spent your money over the past few months to round out the picture.
This exercise will give you an idea of where your money goes and where you can cut back. Once you’ve done it, create some spending goals for the next month and work hard to stick to them. If you’re budgeting successfully, you might be able to handle using credit cards responsibly going forward. But if you’re struggling, it might be worth choosing one of the other options discussed below.
2. Keep using the card
Using a credit card responsibly can help you build and maintain a good credit history. If your credit card offers rewards, you can gain even more value out of your everyday spending.
This option works best if you’re on a budget and sticking to it. If you can do that successfully and start developing good spending habits, you can limit the danger of getting into debt again. Also, you’ll want to set a goal to pay off your credit card balance on time and in full each month to avoid interest charges.
3. Cancel your card
If you’re concerned about getting sucked back into a toxic debt situation, closing your credit card account might be a good idea. But keep in mind that canceling your card can affect your credit score.
First, it reduces your available credit. “If this one card has a significant percentage of your total credit limit across all your credit cards, then closing it could significantly increase your credit utilization,” said Brad Barrett, a certified public accountant and credit card expert at Travel Miles 101. And a higher credit utilization ratio can result in a lower credit score.
You can calculate your credit utilization ratio by dividing your balances by the total amount of your credit limits. For example, let’s say you have three credit cards:
- Card A: $0 balance, $5,000 credit limit
- Card B: $500 balance, $1,000 credit limit
- Card C: $1,000 balance, $2,500 credit limit
Your overall credit utilization ratio on these cards is roughly 18%, which is below the 30% threshold that many credit experts recommend. But if you cancel Card A, your credit utilization will go up to almost 43%, which exceeds that threshold.
What’s more, keeping the account open can help your credit score, even if you don’t use the card regularly. That’s because the open account contributes to your average age of accounts; the higher your average, the better it is for your score.
This isn’t necessarily a recommendation to keep your credit card open. Rather, it’s an encouragement to understand how the decision can affect you and to act based on that knowledge.
4. Leave the account inactive
If you aren’t sure you want to cancel your credit card, but you don’t want the spending temptation either, stick the card in a sock drawer or cut it up. You can ask for a replacement card in the future when you want to start using the account again.
The only pitfall with this strategy is that the credit card issuer could close the card due to inactivity. If you’re concerned about this, you’ll need to contact the issuer to check its policy regarding inactive accounts.
“From my research, there’s no hard-and-fast rule on when the issuers close accounts due to inactivity,” said Barrett. “I’ve seen it as short as one to two years, or in some cases, I’ve personally had cards with no activity for five-plus years that remained open.”
5. Put the card away but keep it active
If you want to keep your account open but not use it regularly, there are two ways to keep the card active. The first method is to put a small, recurring charge on the card, such as a Netflix or Spotify subscription. Then set up automatic payments from your checking account to pay your card balance, so you don’t have to worry about forgetting to make the monthly payment.
“A second option would be to put a reminder in your calendar to make one charge on the card every six months or so,” said Barrett. “This should be sufficient activity to keep the card in good standing.”
6. Downgrade your credit card
One reason why you might be considering canceling your card is that it has an annual fee. However, you might be able to keep the account open without the annual fee.
“If there is an annual fee and you aren’t getting value from that card any longer, you can usually downgrade to a no-annual-fee card and keep your credit history [with the card] intact,” said Barrett.
To downgrade your credit card to one without an annual fee, call the number on the back of your card and ask if the option is available. If so, the credit card issuer can process the downgrade and send you a new no-annual-fee card.
Next steps: What to do with your credit card
To determine what the next best step is for you and your credit card, it’s important to consider your financial situation and how the credit card can impact it. If holding on to the card could pose a threat to your debt-free moment, you might be better off saying, “good riddance.”
But if you can manage to use your credit card to boost your credit score or rack up valuable rewards without getting back into debt, keeping the card could be a worthwhile strategy.
Take the time to think it out and decide what’s best for you and your finances.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.97% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.57% – 6.97%1||Undergrad & Graduate|
|2.47% – 6.99%3||Undergrad & Graduate|
|2.68% – 8.77%4||Undergrad & Graduate|
|3.24% – 6.66%2||Undergrad & Graduate|
|2.61% – 7.35%5||Undergrad & Graduate|
|3.01% – 9.75%6||Undergrad & Graduate|