Do I Have to Pay Interest on a Closed Credit Card?

© Peter Cade / Getty Images

You don't have to wait until a credit card is paid off to close the account. Your credit card issuer won't stop you from closing your credit card while it still has a balance, but that won't prevent you from paying interest on the account. You'll continue to be charged regular interest on your outstanding balance until it's completely repaid.

What Closing a Credit Card Really Means

When you close a credit card, your credit card agreement remains in effect until the balance is completely repaid.

That means that each month you have a balance, your credit card issuer will add a finance charge to your account. The finance charged is calculated based on your balance and your interest rate. (The APR on your credit card balance also doesn't change after you've closed your credit card account.)

The only thing that really changes when you close a credit card is your ability to make new purchases on the card. You'll no longer have access to a credit limit and if you try to use your credit card, the transaction will be declined.

Even after your account is closed, you're still responsible for making at least the minimum payment by the due date until the balance is paid in full. If you're late on your payment or you pay less than the minimum, you can also be hit with a late fee. Multiple late payments can result in your interest rate being raised to the penalty rate.

How to Reduce or Eliminate Interest Charges on a Closed Credit Card

There are a few tactics you can use to reduce or possibly even eliminate the interest paid on a closed credit card account.

Transfer to another credit card. If you want to avoid paying interest or reduce the amount of interest you're paying, consider transferring your balance to a credit card with a 0% balance transfer promotion. Remember that you'll only get a temporary reduction in the interest rate. Once the introductory promotional period is over, you'll be charged monthly interest on the unpaid balance.

Negotiate a lower interest rate before closing. Normally, you might be able to negotiate a lower interest rate on your credit card, particularly if you have a good payment history with the credit card issuer and better interest rate offers from other credit cards. However, it may not be as easy to get the credit card issuer to lower your rate once your account is closed. If you're thinking about closing your credit card, but haven't done so already, consider asking for a lower interest rate before you close the card.

Pay more on your credit card. You can minimize the amount of interest you pay on your credit card, even without a lower interest rate or 0% APR, by paying more on your credit card each month. The lower your balance, the lower your finance charge will be. Plus, paying a large, lump sum towards your credit card each month helps you pay off the balance much faster than if you made only the minimum payment.