Closing a rarely used credit card may sound like a good idea, but it’s not as simple as you may think. Many consumers don’t realize that closing a credit card can negatively impact their credit scores in the short term. But depending on your overall finances and credit situation, it may be worth taking the hit to your credit score — especially if it means saving yourself from overspending and falling deeper into debt.

Let’s see when it’s a good idea to voluntarily close a credit card — and when it’s not.

When to Close a Credit Card

• Temptation to spend: If you have a hard time controlling your spending, closing the account may be your best option to avoid accruing new debt.
• Card fees: If a card has high annual fees, consider paying off the balance and canceling it. You can also transfer the remaining balance to a credit card with better interest and fees. Remember, though, there may be a balance transfer fee.
• Fraud alert: If your credit card is compromised and freezing the account won’t protect you from fraud, consider canceling the card.
• Change in marital status: If a joint account needs to be separated, as in a divorce, canceling makes sense.
• Balance transfer: If you transferred a balance to a lower-interest card, consider closing the higher-interest account, unless it’s been open for more than three years. If you have a longer history with the card, or if there’s a cancellation penalty, just hide it away or cut it up so you can’t use it.

When Not to Close a Credit Card

• You don’t use it very often: Canceling a rarely used card can hurt your credit utilization ratio and drop your credit score. To remove the temptation to spend, consider cutting or hiding (or even, literally, freezing) the card without closing the account.
• You’re still making payments: Whether an account is open or closed, finance charges accrue when there’s a balance on the card. Paying down the balance improves your utilization ratio, but only if the account is open.
• You will be shopping for a loan: Looking to purchase a house or a car in the next year? Canceling a card can impact your credit score and prevent you from qualifying for the best terms and interest rate on a loan.

If you’re feeling overwhelmed by credit card debt, credit counseling can help. You can talk with one of our certified counselors, or complete online counseling at your own pace, whenever it’s convenient for you.