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When involved with the miles and points hobby for a while, no doubt you’ve acquired a few credit cards to take advantage of the nice sign up bonuses. Since we don’t carry balances, this improves your credit ratio. However, many of these cards come with annual fees. When the annual fee is due, you’re faced with a decision of whether to keep or cancel your credit card.
ANNUAL FEE DECISIONS – KEEP OR CANCEL?
We’ve discussed a number of credit cards to help you hack your next trip, and many of the appealing cards come with an annual fee. Sometimes that annual fee is waived for the first year of card ownership, while others you have to pay immediately. When you’re approaching that first year of card ownership you have to decide whether the card is worth holding onto long term, or if it was only good for its sign up bonus. Do you keep or cancel your credit card? You want to make sure you’re getting your money’s worth out of the annual fee.
If you decide that the card is not worth the annual fee, you may also consider downgrading the card to a low or no annual fee option when possible. This can help your continued credit history with the bank and also keep your credit ratio in tact. An example of this would be downgrading your Chase Sapphire Reserve card, which comes with an annual fee of $550, to the Chase Sapphire Preferred card which has an annual fee of $95. This would allow you to continue using your Chase Ultimate Rewards points for travel.
CONSIDER THE SPENDING BONUS CATEGORIES
When deciding whether to keep a card long term, consider how much value you get out of the card. One way to get value out of a card is taking advantage of the spending bonuses offered by the card. For example, we recently discussed the spending categories of the American Express Gold card, which comes with a $250 annual fee.
This card offers 4X points on dining and 4X points at supermarkets. So let’s say that between these two categories you spend about $1000 a month like we do. That’s 4,000 points earned each month. Annualize that to a total of 48,000 points earned in a year (4,000 points X 12 = 48,000). I value Membership Rewards points at about $.02 per point, so those 48,000 points earned on just those bonus categories is worth $960 (48,000 X $.02 = $960). This alone outweighs the cost of the annual fee for me, which justifies paying it every year. Again, these are just examples, so crunch the numbers using your spending habits to do your analysis.
ANNUAL BENEFITS AND PERKS
Some cards don’t offer great spending bonus categories like the American Express Gold card mentioned previously. In this case you’d have to weigh any annual benefits or perks offered by the card to see if they offset the annual fee. We recently discussed this scenario with the American Express Platinum card.
Another example of this would be the Hilton Aspire card by American Express. This card comes with a hefty $450 annual fee, which is a considerable amount of money so you want to make sure you get maximum value out of this card. This card offers a number of annual perks that far outweigh the annual fee in my opinion. It offers a yearly $250 Hilton resort credit, a yearly $250 airline incidental credit, a free weekend night certificate and many other perks. By maxing out these credits alone, you already get more than $450 worth out of this card. With the Hilton Aspire card, deciding whether to keep or cancel the credit card is an easy choice for me.
OVERLAPPING BENEFITS
Another thing to keep in mind when deciding whether to keep or cancel a card is if you’re offered similar benefits on another card. In these cases where you have overlapping benefits amongst 2 or more cards, it can get more difficult to max out the benefits. This makes it more difficult to justify the annual fee. If you don’t use the benefits, then they’re not worth anything.
We were recently faced with this decision with the Ritz Carlton card from Chase. This card is no longer available for new sign ups, but it has a $450 annual fee. It comes with a yearly $300 airline incidental credit, Priority Pass membership, 15 elite night credits and a 50K Bonvoy point annual night certificate. Because I already have airline incidental credits to use from our Amex Platinum and Hilton Aspire cards, I find it difficult to use $300 more in airline incidental credits. Also my wife carries the Marriott Bonvoy Brilliant card by American Express, which offers a yearly $300 Marriott credit which is easier to use for us. We also get Priority Pass membership from other cards, so the Ritz card doesn’t offer any unique perks that we could use to justify the annual fee.
Because of this we downgraded it to the much more manageable Chase Marriott Bonvoy Boundless card with a $95 fee. This card also offers the 15 elite night credit in case you’re working towards elite status with Marriott. It offers an annual free night worth up to 35K Bonvoy points, which could easily be worth over $95.
BEFORE CANCELING, CALL THE BANK FIRST
Once you’ve analyzed the card to see if it is worth the annual fee and have determined that it is not, don’t cancel or downgrade the card just yet. Call the bank first to let them know that you’re thinking of canceling the card. Many times banks will counter with some great offers to keep your business.
They may offer a significant points bonus after spending an additional amount on the card. Sometimes they may waive the annual fee for another year, or reduce the cost of the annual fee. In other cases they may not offer you anything, but it never hurts to ask. If that’s the case, ask them to see what your downgrade options are and continue with the one that works for you.
CONCLUSION
When you’re faced with whether to keep or cancel your credit card, ask yourself the questions mentioned above to help with your decision. The point of this hobby is to travel for cheap. Paying annual fees for cards that don’t provide you with value negates any benefits of this hobby. Staying organized and analyzing your cards will keep you from overspending on cards that you don’t benefit from. Downgrading those cards to low or no annual fee cards could help preserve your credit history and credit ratio. Are there any cards that you consider to be worth the annual fee? Comment down below. Feel free to leave your referral links in the comments section. We’ll see you in the next one.
