When you get a consolidation loan and pay off credit cards does this cancel the card

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By CreditNinja
Modified on June 18, 2023

The short answer is that paying off your credit card, whether it’s with a consolidation loan or not, does not actually cancel the card. While it does bring your balance down to zero, the card will still be open and active. If you want to cancel your card you would need to alert the credit card company. But leaving it open could have some financial benefits. 

For many people in America, credit card debt is an everyday issue. It makes sense, as credit cards are easy to use, and provide customers with money that they may not actually have in their bank account. It’s very appealing to be able to purchase whatever you want at a moment’s notice. But it often leads to unmanageable amounts of debt that can affect your finances for years to come. 

Many borrowers who find themselves in a large amount of credit card debt with several different cards turn to consolidation loans. A consolidation loan is any large personal loan that a borrower uses to pay off several other smaller debts. This allows the borrower to focus on one monthly payment instead of several from a number of different cards and accounts. In other words, it simplifies your finances and makes budgeting and planning easier. 

But should you cancel your credit cards if you consolidate? Some would say no. By leaving your credit cards open, with a zero balance, it shows the credit bureaus that you have access to credit but are not using it. This could potentially help your credit score. This is referred to as your credit utilization ratio. It’s the measure of how much credit is available to you versus how much you’re using. Keeping a low credit utilization ratio shows the credit bureaus and lenders that you’re financially responsible. 

However, if leaving these cards open will lead you to use them again, then it may not be worth the risk. We’d recommend leaving them open and then cutting up the cards so you don’t have access to them anymore, and won’t be tempted to use them again. Regardless, make sure you’re aware of your utilization ratio, and try to keep it low.

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