by Joseph Kenny | 01/21/09

The debt struggle is something hundreds of thousands of Americans are dealing with everyday. Up to their necks in debt, many of them are trying to do what they can to reduce and eventually eliminate their debt. With credit cards being one of the biggest sources of high-interest debt, people usually target those first in order to get them out of the way.

One of the choices that are available in this effort is closing an account. While that can help a person get debt in control, it may not be the wisest choice because it can harm your credit score.

The problem with closing a card account is that it creates a series of events that ripple throughout your financial reputation. The first and most immediate change is that it reduces the average age of your credit accounts, which isn't good because that factors into your credit score.

The second change is that it increases your rate of utilization. Basically, what this means is that your credit usage ratio goes up, a value that is calculated based on balances you carry and the credit that is actually available to you. By closing a card, you're effectively decreasing your available credit in relation to the amount you owe, harming your credit.

Closing a credit card account does have its advantages. It's simply a matter of weighing them against the risks they pose to credit. If you're afraid of hurting your credit by closing a card, you could be racking up more debt which can only make the situation worse. In these circumstances, closing an account is a wise choice to consider.

Fortunately, closing an account with a balance doesn't have to hurt your credit as much as it could. If you can pay off the balance or at least a significant portion of it, you'll effectively reduce your utilization rate and get the credit card out of your life. This is the ideal approach, but it requires serious saving in order to prevent debt accruement from another source.