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Fees, interest charges still possible on closed credit card account

By Tanisha Warner

Credit Care
'Credit Care' columnist Tanisha Warner
Tanisha Warner is the communications manager for Money Management International, where she manages educational content designed to teach consumers about personal finance topics. She writes "Credit Care," a weekly reader Q&A about debt issues, for CreditCards.com.

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Question for the CreditCards.com expert

Dear Credit Care,
Can credit card companies charge a late fee on an account they closed? AND can they continue to charge interest on that same account? -- Casey

Answer for the CreditCards.com expert

Dear Casey,
For closed accounts such as yours -- ones with a balance owed -- the terms of your credit card agreement are still applicable. Only after a closed account is paid in full is the agreement between the card issuer and the account owner terminated.

What does that mean? Well, it means that if you make a late payment, the card issuer may take whatever action is allowed within your card member agreement. A typical late fee is $25. In addition, all other terms of the agreement, such as the interest rate(s) that applies to your account balances are also still in effect. You will be responsible for any interest accrued under your agreement each month you carry a balance. Only once you have paid the balances in full will your agreement with the card issuer end.

If you have had or are having trouble making at least the minimum monthly payment required on this closed account, I recommend that you take action soon. The last thing you want or need is to add to your existing balance on this account with late fees. Paying off the account as quickly as possible would be ideal. You will save money in additional interest payments as well as have the peace of mind that comes with paying off a credit card account. Take a look at your monthly expenses and determine how much you can realistically afford to pay each month on the account. Then use CreditCards.com's payoff calculator and incorporate the monthly amount to find out how quickly your debt will be paid in full.

Should you be unable to consistently make even the minimum payment due each month on the account, you could consider visiting with a certified counselor at a nonprofit credit counseling agency. Check the websites for the Association of Independent Consumer Credit Counselors or National Foundation for Credit Counseling to find a nonprofit agency in your area. Your counselor will review your monthly expenses and income with you and help you determine the debt repayment option that best fits your financial needs. It could be that you just need to cut back in some spending areas to identify the funds needed to pay your monthly credit card balance. Or, you may qualify for a debt management plan, in which your counselor will negotiate with your card issuer on your behalf to lower your interest rate and perhaps your monthly payment.

However, if after reviewing your finances, you and your counselor determine that you don't have enough income to make the minimum payment on the account, you will have some decisions to make. You can look for ways to increase your income or for more drastic ways to cut expenses, but don't ignore the situation. Your credit will suffer and the creditor may take legal action that could result in a wage or bank account [%Link?type=glossary&id=246&text="garnishment. "%].

Handle your credit with care!

See related: Survey: Minimum monthly payments haven't changed; we have, 6 tips to finding the right debt management plan for you

Tanisha Warner is the communications manager for Money Management International, the largest nonprofit, full-service credit counseling agency in the United States. She manages educational content designed to teach consumers about personal finance topics. You can find more money management advice on Blogging for Change and MMI's Facebook page.

Credit Care answers a question about a debt or credit issue from a CreditCards.com reader each week. Send your question to Credit Care.

Published: April 2, 2012


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