When it’s time to cancel a card…what are your options?

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Ok. So you got a card because of the alluring sign up bonus and now that the annual fee is rolling around, you’re weighing the options as to whether or not the card is worth keeping. What should you do? What should you consider?

Well, here are some things to think about as you decide:

1. Is the annual fee worth the anniversary bonus?

There are some cases where this might be true.

For instance, the IHG credit card has a $49 annual fee that kicks in your second year. And the anniversary bonus is a free night certificate. (For information about hotel credit cards and their annual fees and bonuses, check out the final section of our Best Hotel Rewards Program infographic.)

Unlike some of the other hotel credit cards, this certificate doesn’t have a category restriction. So you could use that certificate at some extravagant place like the InterContinental Bora Bora, which goes for ~$700 a night.

But it’s not just a question of deciding whether or not you’d pay $49 for a night that would normally cost $700. Really it’s a question of whether or not you’d pay $49 for a night at all. Because remember, it’s only a good deal if it’s not tricking you into spending more than you would have normally budgeted.

Thanks to our ongoing stats we know that $49 is low enough to keep our nightly average of $20.60. (Read Drew’s recent analysis of two years’ worth of stats.) It’s not unusual for us to spend $50 for a hotel if there are few other options available since we have so many free nights that bring the average down, so $49 seems like a totally fair “price” for a free night cert.

Contrast that however with the Hyatt credit card, which has an annual fee of $75 and an anniversary gift of a certificate for a category 1-4 night. Category 4 hotels can cost anywhere from $225 to $300. So you could probably talk yourself into the $75 annual fee being worth it. However, remember that the goal is to spend less on travel than you otherwise would, not more. So if you wouldn’t usually let yourself pay $75 for a night somewhere, don’t let the idea of luxury and high value convince you to spend more than you would have otherwise budgeted.

This is the part that depends on you to make a decision about what your budget is (and what your budget isn’t). If you’re already regularly paying $75 for random hotels, then maybe you’ll find this annual fee to be absolutely worth it.

As always, it’s up to you. But be intentional.

2. Before you cancel…

If you’ve deemed a card not worth the annual fee, there are a few obvious, and then some less obvious, things to do first.

Obvious: Make sure you’ve taken care of your balance. And if it’s a card that earns bank points like the Chase Sapphire Preferred, go ahead and transfer all your points into a program you love.  You really don’t want to lose all the points you’ve racked up. With cards that are directly linked to airline or hotel accounts, you don’t need to worry about it. Your points, when earned, accumulate in your hotel or airline account, not the card’s account. This isn’t the case for bank points, so you’ll have to transfer the points out before canceling.

Less obvious: Really, there are 3 less obvious “to-dos” at the time of canceling your card.

1. If the agent assisting you offers you a retention bonus of some kind, you’ll have to decide whether or not it’s worthwhile for you. For instance they may offer you an extra few thousand points if you spend a certain amount of money on your card, just to encourage you to keep it. Yet another thing that is going to be up to you to decide. No blanket answer for this.

If the retention bonus doesn’t appeal to you and you decide you’re still in favor of closing the card…

2. Ask if there’s any way the card can be downgraded to a no annual fee card. For example you will likely be able to downgrade a card like the Chase Sapphire Preferred to the regular, Chase Sapphire card. The idea is that you can do a favor to your credit score by keeping the line of credit open, even if you’re not willing to pay the annual fee any longer.

If there was no option for downgrading and you’re still in favor of closing the card…

3. Ask if it’s possible to consolidate the credit from the card you’re closing to another card. This only applies if you have another card with this bank. Again, this sort of does a favor to your credit score. Not to mention allows you the option to move the credit around later if it’s required to open a new card, (for example if you’re initially denied.)

 

What are some of the other “before you cancel” protocols that you can think of?

2 Comments on “When it’s time to cancel a card…what are your options?

  1. Some months ago I applied for a Hilton citi card, 40.000 point, but I never activated. Last week I applied for the same card but with the 75.ooo point. I received the card today but they will not give me those points because I appled for a previous one just a few months ago.Now I need to wait 18 months before I apply for the same card. Since I am not getting the points I will not be using the card. Will my credit suffer a bit? As far as you know am fine to apply for a different card outside of citi right?
    Thanks

    Tito

    • To the best of my knowledge, I don’t think your credit score will suffer at all from not spending on the cards that have no bonuses. I think you’ll be fine. Also you’re fine to apply for any kind of card with any kind of bank that you wish in a few months. I know that different people have different opinions about what’s best, but we try to stick with one card (per bank) every few months and not more often than that. So you could do a Citi and a Chase card on the same day, but if you’ve waited a day or so since your Citi app, then you’ll (in my opinion) be best off waiting 3ish months before applying for another card of any kind. (applying on the same day allows you to take advantage of a slight lag in banks knowing when you last applied for credit. But if you applied for the Citi card yesterday, the banks will now be able to see that, so you’re best off waiting. In my opinion.)

      Hope that wasn’t confusing!

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