At Travel Freely, we are all about a lifetime of free travel, which means maximizing your sign-up bonuses. So there’s a strategic decision to be made when your annual fee is coming up. We believe there’s a best strategy for these decisions in order to maximize your rewards and save on fees. Sometimes it makes sense to pay the fee, but most of the time we recommend cancelling or changing your card to a no annual fee card.
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You have three options:
1) Keep your card
2) Change your card
3) Cancel your card
1. Keep the card and pay the annual fee. Some cards are just worth keeping. For example, the Chase Ultimate Rewards points that come with the Chase Sapphire Preferred card have some great flexibility. This card is usually my all-the-time card when I’m not hitting a bonus. I can utilize the range of redemption options. Another reason to keep the card is that you find the perks outweigh the cost. Maybe you travel on United all the time and you enjoy getting free checked bags, so you’re willing to pay the annual fee on your United card.
2. Change the card to avoid the fee. Changing (or “downgrading”) is always the first option if you don’t want to pay the annual fee. Not all cards can be downgraded, but most can. To downgrade a card means that you are changing your card to a $0 annual fee card, or doing a “product change.” This change is so good because it does not close your credit history for that account.
Another big benefit to downgrading, besides avoiding an annual fee and keeping good credit history going, is that it works best for a lifetime of free travel. Why? Because you can become eligible and re-apply for most of the big rewards cards you’ve already had. That is, you can get the same card every couple of years. So if you downgrade the card, you will no longer officially hold that card and you will be ready to become eligible for another big bonus down the road.
3. Cancel the card to avoid the fee. If you cannot make a change and want to avoid the annual fee, it’s a good idea to cancel as long as you have some long standing $0 annual fee cards as the backbone of your credit score. Some people are concerned about their credit score. On average, if you have several cards, cancelling a card will only temporarily drop your score by a few points.
How to change or cancel your card: It’s simple. Call the number on the back of your card. Let them know you’d like to downgrade (or cancel the card) because you don’t want to pay your annual fee. They may try to talk you into keeping the annual fee by offering some bonus points or a statement credit. If you feel like it’s worth doing, go for it. But most of the time, it’s better to continue as planned.
When to downgrade or cancel: Make these decisions about a month before the annual fee is due. (If you’re using Travel Freely’s automated reminders, you’ll get an email 45 days and 10 days before the fee is due.) The main reasons to make a change one month before: 1) You have time to pay off any balance for that month and transfer any points that may still be attached to the account; 2) You don’t have to worry about the annual fee hitting my statement and asking for it to be removed.
Note about American Express: Doctor of Credit has reported (on 4/10/19) that cancelling an Amex card within 12 months may lead to them clawing back your initial welcome bonus! To avoid this, let the annual fee hit your statement. Then, you have 30 days to cancel and the annual fee will be refunded.
Two words of caution:
1) Be sure you know if you’ll keep your points/miles:
Bank rewards cards: If you have a bank card (like a Chase Sapphire, Amex Gold, or Citi ThankYou), you will most likely lose your rewards when you cancel or downgrade your card. This can be reason enough to pay the annual fee and keep it. But, if you have another account or a family member with the same kind of account, you can transfer or merge those points to the other account, then cancel the card. If you have a lot of points and still want to cancel even though you don’t have a way to transfer points, you can always convert remaining points to gift cards before cancelling.
Co-branded cards: If you have a co-branded card (like a airlines or hotel card – e.g. Chase Southwest, SPG Amex, Chase United Airlines), those points are tied to the loyalty program and are already out of your credit card account. So, you can cancel hotel or airline cards and never lose your points.
2) Don’t cancel a card if you’re in the process of getting a loan:
If you are in the process of closing on a mortgage or car loan, you may want to wait so that there are no changes to your credit. While cancelling a card may only temporarily knock you for a few points, some lenders don’t want to see any changes while they are processing your loan.
Want to put this process on auto-pilot? You can. Travel Freely has the tools to notify you at the right time to make decisions on annual fees. In addition to annual fee reminders, you’ll get reminders for sign-up bonus deadlines, when you’re eligible to apply for new cards, and when you dip below 5/24 (for those who know about the 5/24 rule). Set it, and forget it with Travel Freely.
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