Good points earning credit cards always come with a catch: an annual fee. Obviously, once you have 4, 5, or 10 of these cards, it becomes unwise to pay for all of the annual fees. So you’ll need to do two things: decide what cards to cancel, and then actually cancel those cards to avoid the annual fee. Here’s how:
Part 1: Deciding which cards to keep
I find this process pretty straightforward. Ask yourself – is the annual fee worth the benefits I receive from it? What do I lose if I lose this card? For some cards, this is pretty straightforward. For example, for a $95 Citi AA card, I get free checked bags and Zone 2 boarding. Do I think I will need over $95 for checked bags on AA in the next year? If so, I keep the card, if not, see ya.
There are some other things you need to consider. The most powerful cards – the Chase Ultimate Rewards cards and the AMEX Membership Rewards cards, are sometime worth keeping. Why? Because if you cancel those cards, you lose all your points (AMEX) or you lose the ability to transfer them to airline and hotel partners (Chase). Thus, I make sure to always keep one Chase Ultimate Rewards card open (Sapphire Preferred or Ink). For AMEX, I just make sure to transfer all my points to partners before cancelling. That’s because I won’t be eligible for new sign up offers from AMEX if my old cards are still open.
The final point to consider is opportunity cost. If you keep a card open, you preclude yourself from getting that sign up bonus again if you sign up for the card again. American Express and Chase both generally allow you to receive a sign up bonus again if you haven’t had the same product within a year (though of course double check if you’re going to do this). So, if you keep a card open, you can’t get the bonus on that same card again.
Part 2: Canceling your cards
One very important rule before I talk about cancelling: Never cancel a card less than six months after you’ve opened it. It generally just looks bad and after a few times it becomes obvious you’re just in it for sign-up bonuses, this could lead to banks shutting you down.
What’s the best way to cancel your cards? I just like to call and say I want to cancel because I am concerned about the annual fee. Sometimes, this triggers the retention department, who may offer you something to keep the card. This could be waiving the annual fee for another year, extra miles, or a statement credit (usually linked to a certain amount of spending). If you like that offer, go for it! If they’ve offered you something, you can also ask if there is anything else that they can offer. For example, if they offer to give you 10K miles, you can ask if there are statement credits available and vice versa.
A more aggressive strategy involves calling to cancel around 9 months in order to try to get some retention bonuses. Then you can squeeze some extra miles or money out of your card before you cancel at 12 months. Why 9 months? That gives you enough time to meet any spending requirements for the retention bonus and to make sure the points post. I don’t generally do this, but there’s no harm in trying.
Part 3: Retaining your credit – important!
This last point is important enough to get its own section. When you’re cancelling your card, if you have any other cards with that bank, ask if they will move the credit line over from your cancelled card to one of your other cards. This way, you don’t lose the total amount of credit available to you, which helps your credit score. Sometimes the banks will even offer to do this, but make sure you ask.
Final Thoughts
Canceling cards is an important part of any credit card strategy. Generally, cancel cards when the annual fee isn’t worth it and so you can open up the potential to get the sign up bonus on the card again in the future. When cancelling your card, if you get a good retention bonus, go for it. When you finally cancel your card, make sure you ask the bank to move your old credit line over to other cards if you have them.
[…] Jess to call to cancel one of her Chase cards. Like a good soldier, she made the call and also requested that the credit line be transferred to a new card. Like a bad officer, I didn’t do thorough research and just had her transfer to her Chase […]