The short answer to this question is yes, of course, there is no law against this … BUT (you saw that coming didn’t you?) while there is nothing to stop you closing a balance transfer credit card, whether it is paid off in full or whether you did another balance transfer, there are a few things to think about before closing the card.
This could be the annual fee, an ATM transaction fee, a late payment fee or foreign currency or other fees that are still unpaid. You will continue to receive statements and requests for payment until you have cleared the full balance, including any applicable fees, so keep this in mind as you decide when is best to close your card. On the positive side of this, see point 2 below.
Although a credit card is like a loan in some respects, and is considered a credit contract, it is not the same as a home loan or large personal loan where you are penalised for cancelling early. Credit cards in general do not come with an ‘exit fee’ for cancelling them. In many cases the banks can try and persuade you to keep your card with a special rate or some other offer they have made up themselves, and it is entirely up to you whether you accept this or not.
When you close a credit card you are reducing the total amount of credit you have available which is unused (doing a balance transfer will most likely take up at least 70-80% of your new approved credit limit with that provider). This means the ratio of debt as a portion of your available credit goes up, at least for a while until your repayments start to bring the balance down. Consider carefully whether this might have an impact on your credit file, and applications for other credit products you want to make such as a home loan, car loan or new credit contract.
If you are thinking of applying for a major loan or more credit in the future, it is a good idea to seek financial advice before making any decision that will impact your credit file. The ASIC website (www.asic.gov.au) also has a number of free tools, calculators and resources to help you understand the implications of closing a credit card and advice on what to watch out for. In some cases it can make sense to keep a card open and use it occasionally, paying off the balance in full, to maintain a lengthy and positive credit history.
Debit cards can be used for a lot of the same things credit cards can, but they can’t always give you access to extra funds unless you have a pre-approved overdraft – and even then that amount will have to be enough to cover the expense or it’s of no use to you. One of the things credit cards were invented for was to cover those unexpected costs that can pop up where the cash isn’t sitting in the bank account that same day. These situations will continue to happen; medical emergencies, car repairs, paying for tickets in advance, spontaneous travel and vet costs are just some examples of times you might need a credit card to get you out of a tight spot. Do you have another credit card to lean on if you need it, or a big enough savings buffer to cover unplanned expenses? Do you have access to another bank account or card if you are unable to access your main account for some reason? If not, it may be time to organise an alternative way of accessing emergency funds before closing your card.
Even if you indicate on your application that you intend to cancel your existing credit card, the bank will not do this for you, so you’ll have to arrange for the card to be cancelled separately to any balance transfer, new credit card or loan.
Once you’ve made the decision to get a balance transfer credit card and then cancel your card, it’s a matter of making sure you’ve paid off the balance and any fees and calling the bank, or visiting a branch. You may be able to send a secure e-mail via internet banking to start the process if your bank allows this (though a phone call might still be necessary). Even if the card is closed from the date you make the request, you will continue to receive statements and requests for payments until any remaining balance is paid off, including applicable fees. Making sure you have seen all recent transactions recorded on your account, and keeping the last statement as a record that the balance is paid off can help avoid potential issues or additional payments.
For more information about balance transfers, see some key rules we’ve explained already. From there you can also view the balance transfer FAQs we’ve answered and submit any further questions for us to answer.
Pauline is a personal finance expert at CreditCard.com.au, with 8 years in money, budgeting and property reporting under her belt. Pauline is passionate about seeing Aussies win by making their money – and their credit cards – work smarter, harder and bigger.
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