Cancelling a credit card can be a crucial decision for your financial health.

Whether you're trying to reduce the number of cards you manage, avoid annual fees, or just make a clean break from a card that's no longer serving your needs, it's important to cancel it the right way.

Why Do You Want to Cancel the Card?

Before you make any decisions, take a moment to consider the reasons behind canceling your credit card. If your goal is to simplify your finances or reduce debt, it's essential to weigh the benefits and risks. Sometimes, it may be better to leave a credit card open but unused, especially if it contributes positively to your credit score.

John Ulzheimer, a credit expert and former FICO and Equifax insider, notes, "Even if your spending doesn't change, your credit score could fall because your utilization rate goes way up," and explains that closed accounts in good standing can continue to age on your reports.

Check Your Credit Card Balance and Pay Off Debt

The first step in safely canceling your credit card is to pay off any outstanding balances. Carrying an unpaid balance could result in accruing interest or fees, and could complicate the cancellation process. Additionally, if you're carrying debt on multiple cards, focus on paying down the highest-interest cards first. Make sure your credit card balance is fully paid, and check for any last-minute charges or automatic payments that may have been scheduled.

Beverly Harzog, a consumer credit expert, advises keeping credit utilization below 30%—and notes many top scorers stay under 10%.

Redeem Any Rewards or Points

Before you close your account, don't forget to redeem any accumulated rewards, such as cashback, travel points, or store credits. Some credit cards allow you to redeem rewards until the account is closed, but others may forfeit any unused rewards upon cancellation. Check the terms and conditions associated with your rewards program to avoid losing valuable points or cashback. Review your reward balance and use any points before initiating the cancellation process.

Contact Your Credit Card Issuer

Once your balance is paid off and rewards are redeemed, it's time to contact your credit card issuer. You can typically cancel by calling the customer service number on the back of your card. Make sure to request confirmation of the cancellation, and ask for details on how to destroy the card securely. Many issuers will ask for your name, account number, and the reason for cancellation. Be polite and firm when speaking to customer service. Request a written confirmation of your cancellation for your records.

Monitor Your Account for Future Charges

After cancellation, keep a close eye on your account for several weeks to ensure that no further charges appear. If you notice any new charges or fees, contact the issuer immediately to resolve the issue. It's important to verify that the account is truly closed and that no automatic payments or recurring subscriptions were missed. Make sure all automatic payments and subscriptions linked to the card are redirected to another payment method before cancellation.

Check Your Credit Report

After cancellation, it's wise to check your credit report to ensure that the card has been marked as "closed" and that your credit score hasn't taken an unexpected hit. Canceling a card may impact your credit score, especially if it was one of your older accounts or if you have a high balance on other cards. The key here is to understand how closing the account may affect your credit utilization and credit history length. Use free annual credit report services to regularly monitor your credit score and credit report for any discrepancies.

Consider Alternatives to Canceling a Credit Card

If you're hesitant about canceling your card due to concerns about your credit score, there are alternatives you can consider. For example, you might want to consider requesting a lower credit limit instead of canceling. Alternatively, some people choose to simply stop using the card while leaving it open to preserve the account's impact on their credit score. Consider freezing the card or cutting it up if you don't want to use it, but still want to keep it open.

Understand the Impact on Your Credit Score

It's essential to understand the potential impact of canceling a credit card on your credit score. When you cancel a card, you decrease your total available credit, which can increase your credit utilization ratio. A higher ratio can negatively impact your credit score. To minimize this effect, ensure that you're keeping balances low on other cards, and that your overall credit utilization remains under 30%.

Canceling a credit card doesn't have to be a daunting process if done correctly. By following these steps, you can ensure that you are protecting your credit score and avoiding unnecessary complications. Be sure to pay off all debts, redeem rewards, and monitor your account closely after cancellation.