Should You Close Old Accounts to Pay Off Debt? What You Should Know

When trying to pay off debt, many people consider closing old credit accounts to simplify their finances or prevent further spending. However, closing accounts can impact your credit score and overall financial health. Before making a decision, here’s what you need to know.

1. How Closing an Account Affects Your Credit Score

Closing an old account may seem like a smart move, but it can negatively impact your credit score in several ways:

• Reduces Your Credit History Length
  The length of your credit history makes up about 15% of your FICO score. Older accounts show a long track record of responsible credit use. Closing them may shorten your average account age, which can lower your score.

• Increases Your Credit Utilization Ratio
  Your credit utilization ratio is the amount of credit you’re using compared to your total available credit. When you close an account, you lose that available credit, which can increase your utilization ratio and hurt your score.

• Eliminates a Positive Payment History
  If the account has a good payment history, keeping it open continues to build your credit. Closing it removes an active source of positive credit behavior.

2. When Closing an Account Might Make Sense

In some cases, closing an old account can be beneficial:

• High Annual Fees or Maintenance Costs – If the account has costly fees and you’re not using it, closing it could save money.
• Risk of Overspending – If keeping the account open tempts you to accumulate more debt, closing it might help with financial discipline.
• Fraud or Identity Theft Concerns – If the account is vulnerable to fraud, closing it could protect your credit.

3. Alternatives to Closing an Old Account

Instead of closing the account, consider these options:

• Keep it open but unused – Let it contribute to your credit history without adding debt.
• Request a credit limit decrease – Reduces the temptation to spend without closing the account.
• Convert to a no-fee card – If fees are a concern, ask your issuer to switch you to a no-fee alternative.
• Use it for small, recurring purchases – Keeping it active with a small bill (like a streaming subscription) and paying it off monthly can maintain a healthy credit score.

4. Focus on Paying Off Debt Strategically

Instead of closing accounts, focus on these debt repayment strategies:

• Debt Snowball Method – Pay off the smallest debts first for quick wins and motivation.
• Debt Avalanche Method – Pay off the highest-interest debt first to save the most money.
• Balance Transfers – Move high-interest debt to a 0% APR credit card if you can pay it off before the promotional period ends.

Final Thoughts

Closing old accounts may seem like a step toward financial freedom, but it can harm your credit score in the long run. Unless an account has high fees or security concerns, keeping it open while focusing on responsible debt repayment is often the smarter choice. Instead, develop a strong debt payoff plan and maintain healthy credit habits to achieve long-term financial stability.