SoFi

If you’ve been thinking about canceling one of your credit cards, you may have heard that you should keep it open.

If so, you might be wondering, “Why? Is it bad to cancel a credit card?”

The answer, as with most finance-related matters, is that it depends on your specific situation, including the reasons you’re thinking about closing that card.

Perhaps, for example, your credit card company has changed its terms in a way that’s not acceptable to you, or you just want to simplify your finances by having fewer credit cards in your name.

“Can I cancel a credit card?” is, of course, different from “Should I cancel a credit card?” Keep reading to find out the difference between the two, some pros and cons, and other considerations.

Note that this is just an overview of common tips, questions, and hypotheticals. Only you can decide for yourself what makes the most sense for your unique financial situation.

Times When You Might Consider Canceling

If a credit card is costing you money, maybe because of annual fees, then you might be thinking about closing that card, especially if you don’t really use it. Before you do, it’s possible to the credit card company to see if the fees can be waived. There is no guarantee that the answer will be yes, but it doesn’t hurt to ask.

Maybe you find yourself putting impulse purchases on this card and you can’t pay the balance off in full at the end of the month. Then you may decide to cancel the card to get your debt under control.

Or you may learn about a card that offers great rewards you could benefit from, whether that’s cash back, loyalty points, frequent flyer miles, or something else.

So you might decide that a reward credit card would be better suited for your needs and you’re thinking about closing your current card and using this one instead.

That may be the right choice for you. Note, though, that reward cards typically have a high annual percentage rate (APR), so if you don’t pay your balance off in full each month, this may not be the best fit.

Here’s another scenario. Let’s say that your credit card has a high interest rate. Does it make sense to shop around for a better one and transfer the balances? What about applying for a zero interest credit card?

More About Zero Interest Credit Cards

You’ve probably seen offers for no interest credit cards and may think that you should apply for one and transfer your balance from a high interest credit card to this one. And, in certain circumstances, that may make sense for you.

If, for example, the new credit card would give you a six-month introductory window to pay off your balance or at least significantly pay it down at zero interest, you might end up saving a nice amount of money on interest.

On the other hand, the interest rate will go up after the introductory period—and it’s possible that it would be higher than your current credit card. So be mindful about this process and investigate the specifics before transferring your balances.

There are other potential problems. Sometimes, if you don’t pay the entire balance off during the introductory period, the company collects interest on the entire principal, even if your remaining balance is close to zero. So, in this case, nothing was really free about this credit card, and it may end up costing you more money in interest.

In addition, sometimes there are fees attached to the transfer. When that’s the case, typical fees might be about 3% of the balances you’re transferring, with some as high as 5%—and, if the zero interest credit card you’re considering has fees of 5%, that’s $500 on a $10,000 balance!

Circling back to the main issue, if you decide to transfer your balances to a no interest credit card, should you cancel your old one?

If you keep both the old card and the new one, and end up using both of them, you may end up in more debt than if you hadn’t done the transfer in the first place. There is no one right strategy to take, so it’s important to create a plan that works for you.

So, can you cancel a credit card? Of course you can. But, the more important question may be whether you should—and to help you make your decision, here are some common reasons you might not want to cancel that card.

Before You Cancel

Having debt and managing it responsibility—including credit card debt—can be seen as a plus by creditors. And if you cancel a credit card, under certain circumstances, it can have a negative impact on your credit.

Is your credit utilization rate under 30%? That can show lenders you can use credit responsibly. A credit utilization rate is the percentage of available credit you’re currently using—so if you cancel a credit card, the amount of credit you have available to you will go down by the amount of the unused credit on that card.

For example, a credit card with a credit limit of $10,000 and a $2,000 balance on it, then there’s $8,000 of available credit on that card. Cancel that card and that $8,000 available credit vanishes, which causes overall credit utilization rate to go up.

Another factor in your overall credit score is the average age of accounts. If you cancel an older card in your name, this can lower the average age of your accounts, though even closed accounts remain on your credit report for seven to 10 years.

•   If you do decide to cancel a card, good rules of thumb include:

•   Before canceling a card, continue to make payments on time until the balance is paid in full.

•   Check credit scores afterward to make sure no errors occurred.

•   Avoid closing several of them at once, because this could look suspicious to creditors.

Contact the company to find out exactly what needs to be done to close the account. Simply cutting up your card isn’t actually closing it. If there is an annual fee associated with the card, you could still be charged that amount.

Using the Credit Cards You Keep Open

If you decide to keep all or some of your credit cards open, these ideas could provide guidance on their use.

Once your credit-worthiness is established, you might start receiving credit card offers. Maybe a whole lot of them. And when you go into a store, you might be asked if you’d like to apply for one of their credit cards—and they might offer you discounts and other perks to say yes.

Each time you apply for a credit card, however, it can trigger a credit inquiry that’s called a “hard pull” or “hard credit inquiry.” If this happens too often in a short amount of time, it could affect your credit score.

Does a credit card offer cash advances? If so, you might want to check the APR you’d pay if you’re considering a cash advance. It’s likely to be several points higher than paying for a specific purchase with the card. If you use your credit card at an ATM, you may also need to pay a fee, so it’s often better to use a debit card or write a check when you need cash.

Another option is to contact your credit card company and ask for a better interest rate/APR. A 2018 poll for CreditCards.com showed that 56% of the people who asked got a thumbs up to their request. And 70% of those who asked to have their annual fee waived or lowered got a positive response.

Managing Credit Card Debt

Perhaps you’re trying to determine how much credit card debt is too much for you. If so, then having the ability to make the minimum payment each month typically isn’t the best benchmark, because paying only the minimum can cause your debt to grow because of compounding interest.

It can make sense to use the concept of credit card utilization to determine if you’re being smart with your credit card management.

As another check, you could calculate your debt-to-income ratio, especially if most of your debt is credit card debt. If it’s higher than you’d like, this may mean it’s time to take action on your credit card debt.

Your debt-to-income ratio shows how much of your pretax income goes toward paying monthly debt—and when it’s high, some lenders might be reluctant to lend to you or may charge a higher interest rate. They might decline to lend you any money at all.

If you decide that it’s time to pay off your credit card debt, there are many methods and strategies out there, including the snowball method. Steps include the following:

•   Choose the account with the smallest outstanding balance to pay off first.
•   On other accounts, pay the minimum amount due to avoid late fees.
•   With your targeted account, pay as much as possible with the goal being to pay it off as soon as you can.

Once that account is paid off, select the next account with the lowest balance and repeat the process, but add the amount you were paying on the initial balance (thus, the snowball).

This can be an effective method of paying off credit card debt because it builds momentum and creates incremental financial victories, but it doesn’t address interest rates. So it’s important to factor in higher-interest debts before embarking on a strategy like this one.

Whether you choose to use the snowball method or another strategy to manage and pay down debt, at the heart of it all is effective budget tracking.

Tracking what you spend could help you decipher where you’re overspending—and, with today’s virtually frictionless spending, that’s easy to do. Sometimes, people who start to track their spending for the first time discover they’re actually spending hundreds of dollars more in certain categories than they realized.

Until you have financial benchmarks to monitor, it can be hard to make meaningful changes in your spending and saving habits. With accurate tracking, though, you may find yourself feeling inspired to eliminate some expenses (perhaps unused online subscriptions) and reduce others (maybe your cell phone bill).

Although this might initially feel tedious, it could give you the freedom to spend your money on what really matters to you.

Taking Out a Personal Loan

Another option to help crush your credit card debt could be an unsecured personal loan. Taking out a credit card consolidation loan could help consolidate your debt and get it back under control.

SoFi offers personal loans with low rates and no fees required. Get started and check your rate in 1 minute.

---

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SOPL19075

Read more

Most military spouses understand going in that their married life will come with a distinct set of challenges.

When a husband or wife who serves is deployed, many of the duties married couples expect to share—from caring for children to running the household and making ends meet—fall to the one who stays behind. And the frequent moves military couples typically experience can be disruptive to careers, families, and friendships.

The federal government provides many forms of financial assistance and other benefits to personnel and their partners to make military life easier, including help with moving, job hunting, child care, and health care.

There are some educational benefits for military spouses as well. The Department of Defense’s My Career Advancement Account (MyCAA) Scholarship Program currently provides up to $4,000 in tuition assistance to eligible military spouses who wish to pursue certain associate degrees, certifications, or licenses for in-demand portable careers.

And the transferability option of the Post-9/11 GI Bill allows service members to assign all or some of their unused benefits to a spouse or dependent children.

Those benefits don’t cover past college debt, however. There isn’t a designated military spouse student loan forgiveness program or a military spouse school loan repayment plan.

There are options, though, for those who are struggling with student loan debt. Here are just a few options you may consider looking into:

Public Service Loan Forgiveness

Military spouses who share their loved one’s passion for helping others and want to have a career in public service—at a nonprofit organization, in public health, education, law enforcement, or government, for example—may want to check out the Public Service Loan Forgiveness Program (PSLF).

This program forgives the remaining balance on some federal loans after the borrower has made 120 on-time monthly payments under a qualifying repayment plan while working full time for a qualifying employer.

Private student loans are not included in the program, and only federal loans received under the William D. Ford Direct Loan Program are eligible for PSLF.

Those who have loans under other federal student loan programs, such as a Federal Family Education Loan (FFEL) or a Federal Perkins Loan, may become eligible if they consolidate them into a Direct Consolidation Loan.

However, only qualifying payments made on the new Direct Consolidation Loan can be counted toward the 120 payments required for PSLF.

The program has its pros and cons, and it certainly isn’t a quick fix. Applicants must be vigilant about tracking their employment through the years, and getting certified can be complicated.

According to the June 2019 PSLF Report Other Sources of Assistance

Those who don’t qualify for PSLF may be able to find career-based repayment assistance from other sources.

Under the Teacher Loan Forgiveness Program, for example, someone who teaches full time for five complete and consecutive academic years in a low-income school or educational service agency—and meets certain other qualifications—may be eligible for forgiveness of up to $17,500 on Direct/Federal Stafford Loans.

Nurses also may be eligible for help with their student loans through federal programs like the Nurse Corps Loan Repayment Program or the National Health Service Corps Loan Repayment Program.

The amount of repayment in those programs can vary depending on the nurse or nurse practitioner’s length of service at a qualifying facility, but they could knock thousands of dollars off an eligible person’s debt.

Many industries and professional associations also offer student loan repayment assistance, with programs for lawyers, doctors, medical researchers, and others. And there may be opportunities to apply for student loan help through state and local programs as well.

Federal Repayment Plans

For borrowers who don’t necessarily qualify for those career-related forgiveness and repayment programs, there are other options out there for those who apply and meet certain criteria.

The government offers four income-driven repayment plans that could lower a military spouse’s payments: the Revised Pay As You Earn Repayment Plan (REPAYE), the Pay As You Earn Repayment Plan (PAYE), the Income-Based Repayment Plan (IBR), and the Income-Contingent Repayment Plan (ICR).

Under all four plans, after making qualifying monthly payments, borrowers will be eligible for forgiveness on remaining loan balances. Keep in mind that lowering your monthly payment will likely mean paying more in interest over the life of the loan.

Military spouses can get an idea of what their payment will look like by logging in and using the Repayment Estimator at StudentLoans.gov. This tool can compare payments under different federal repayment plans to help find which one is right for you and your situation.

One thing to remember is that under an income-driven plan, the amount that’s forgiven is sometimes treated as taxable income—so a borrower may end up with a tax bill in the year the debt is forgiven.

Refinancing to a More Manageable Payment

You may have noticed that most of the options listed above are limited to borrowers with certain types of federal student loans and who are willing to do a bit of legwork.

But those who don’t have qualifying loans—or those who think they can find a workable repayment plan elsewhere with a more competitive interest rate—may want to check into refinancing student loans through a private lender.

Refinancing offers borrowers a chance to adjust their monthly payments and choose new repayment terms. And military spouses with multiple loans may find they like the idea of combining them into one manageable payment.

Lenders may offer both fixed and variable interest rates, varying loan lengths, and autopay options so borrowers can tailor a loan to suit their specific needs. Finding rates and applying online for a refinancing loan usually only takes a few minutes.

Before shopping for offers, however, it’s important to note that refinancing federal student loans turns them into private loans, which means losing access to all federal forgiveness programs, repayment plans, and other federal benefits and protections.

Once a borrower refinances with a private lender, there’s no going back to a federal loan or the advantages it may offer.

But borrowers who have good credit and solid employment (among other factors) may find they can qualify for a lower interest rate and/or a shorter repayment period—or to lower their monthly payments via extending their repayment terms—as well as other perks by refinancing with a private lender.

For example, SoFi offers member benefits that include career counseling, networking events and a referral program. And some private lenders, including SoFi, will combine and refinance both federal and private loans so there’s just one student loan bill to pay every month.

Dealing with life as a military spouse can be difficult enough without also having to grapple with the stress of student debt. Though there currently aren’t any student loan forgiveness or repayment programs designed specifically with military spouses in mind, there are ways to help get rid of that extra burden.

Are you a military spouse who wants to give student debt its marching orders? See if refinancing with SoFi could work for you.

---

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.

SOSL19079

Read more