Cut Credit Card Costs: 3 Easy Ways to Save - Forbes

Cut Credit Card Costs: 3 Easy Ways to Save - Forbes

Cut Credit Card Costs: 3 Easy Ways to Save - Forbes

Posted: 16 Apr 2020 05:08 AM PDT

Keri Anderson hasn't lost her job, but she's already considering whether she should cancel some of her credit cards to save on annual fees. Before the COVID-19 pandemic, each card provided value to her above what she was paying. She's a frequent traveler who used benefits to save money on things like checked bags and free hotel nights. Now, though, she says, "If I won't be traveling as much this year, saving several hundred dollars on the annual fee may be a better value."

There are more premium credit cards on the market now than ever before. Benefits range from things like free airline lounge access to travel insurance or even free Uber credits. Of course, getting these benefits comes at a cost: ultra-premium cards have fees of $450-550 per year.

Despite the high cost, these cards remain popular because they offer outsized value to customers who can take advantage of their included benefits. On a single trip, a traveler could get hundreds of dollars in value from free airline lounge access, priority boarding, rental car upgrades, complimentary hotel breakfasts and suite upgrades, and even extras like spa credits. But to get value like that, you have to travel.

Since people are staying home now, the annual fee cost-benefit ratio looks different than it did earlier in 2020. When your cards come up for renewal, is it worth paying for another year?

Canceling Cards Saves Fees, but Might Not Be the Answer

Closing a credit card means saving on your annual fees, but only if you time it right. For the most part, banks won't prorate your annual fee if you close a card mid-year. That means you can save on next year's fee but not have this year's fee refunded. There's often an exception if you close your account within 30-60 days of paying the annual fee, but beyond that, you're out of luck.

Before closing an account, consumers should weigh more than the cash savings versus the benefits. If your card earns cash back or rewards points, you might forfeit them when you cancel the card. Make sure you redeem your points (or transfer them to partner airlines or hotels) before cutting the card out of your life.

Closing a credit card can also impact your credit score, especially if it has a high credit limit. Your credit utilization makes up 30% of your FICO score and closing an account will likely cause your overall utilization to go up.

Still, no one wants to waste money on unused benefits, especially when cash is tight. Thankfully, there are other potential options to save you money even without closing your account.

Retention Offers are a Best Case Scenario

In some cases, credit card issuers might extend a retention offer to you to encourage you to remain a cardholder. Call to speak with a representative, let them know you are thinking about canceling the card and see if they offer you a bonus. You might receive a reduced annual fee, statement credit or bonus points on your account.

Not all accounts will qualify for an offer, though. Banks look at your payment history along with other factors like how often you use the card. Only valuable customers get offers—and the size or type of offer can vary from one cardholder to another. Some offers might only be worth a fraction of the annual fee you'll need to pay and others require you to spend thousands of dollars to earn a fee rebate.

That said, the right retention offer can seem like a dream come true. If you accept the offer, you'll keep the exact same card with the rewards and benefits you're entitled to.

Read More: Master List of Credit Card Issuer COVID-19 Policies

Downgrade Your Card to Save Money

There's another option for cardholders who can't justify paying a huge annual fee but don't want to lose their account. Downgrading to a different credit card can balance a set of benefits with your cost out of pocket. Banks call this product changing and won't advertise this option online, but might offer it on the phone when you call to cancel.  If they don't, be sure to ask.

You might be limited to product changes within a single card family, like switching from the $450 Citi® / AAdvantage® Executive World Elite™ Mastercard®* to the $99 Citi® / AAdvantage® Platinum Select® World Elite™ Mastercard® or the $0 American Airlines AAdvantage MileUp℠ Card*. Even within a single family, you'll often have several price points to choose from, each with different earnings structures and included benefits.

When you downgrade your credit card, you won't earn any new cardmember bonuses because it's not treated like a new account. However, you'll still have access to any pre-existing rewards you've earned, you'll maintain your credit relationship with the bank and you'll have access to that line of credit for future purchases. Most importantly, you'll save on the cost of your annual fees.

Alternatives to the Chase Sapphire Reserve®

The Chase Sapphire Reserve had its annual fee raised by $100 to $550 just a few months ago, adding an extra sting to an already expensive card. Some cardholders were preemptively targeted with a $100 statement credit to offset their fee (check your secure messages to see if you received one) due to the COVID-19 pandemic.

If you're looking to downgrade this card, the closest alternative is the Chase Sapphire Preferred® with a $95 annual fee. It earns rewards at a lower rate, but keeps some of the benefits cardholders like most, like the ability to transfer Ultimate Rewards points to airline and hotel partners. For an alternative with no annual fee, the Chase Freedom®* and Chase Freedom Unlimited®* are in the same family but with fewer included benefits.  If you want to keep earning and using Ultimate Rewards points for travel partners, be sure to have at least either the Sapphire Preferred, Sapphire Reserve or Ink Business Preferred® Credit Card* in your portfolio.

Alternatives to the Citi Prestige® Card*

Similar to the Chase Sapphire Reserve, the Citi Prestige carries a hefty $495 annual fee and has mid-tier and free card alternatives. To keep the ability to convert ThankYou points into airline miles, you'll need to switch to the $95 annual fee Citi Premier℠ Card*. You'll lose lounge access and other benefits, but save $400 in the process.

As a free option, you might be able to switch to the Citi Rewards+ Card. You'll lose out on the ability to transfer rewards points to airline partners when you downgrade to this option. However, if you upgrade your card again in the future, any ThankYou points you have will once again be eligible for transfers.

Alternatives to the American Express Platinum

At $550, The Platinum Card® from American Express doesn't come cheap, but you can save by switching to the American Express® Green Card. Although it's not a free card, it comes with benefits like credits to CLEAR and LoungeBuddy for just $150 as opposed to the pricey Platinum card. For someone who doesn't want to give up all their travel comforts, it's a good alternative.

American Express has strict rules on welcome bonuses. Be aware that downgrading to a different card, like the Green Card, may make you ineligible to earn a welcome bonus on that card in the future. If that's important to you, a product change might not be the best option.

To view rates and fees of The Platinum Card® from American Express, please visit this page.

To view rates and fees of The American Express Green Card®, please visit this page.

Alternatives to Most Airline and Hotel Cards

Loyalty rewards are such a lucrative business that most major airlines and hotels have multiple tiers of cards for their program. You'll often find ultra-premium cards, mid-range cards and free cards for each program. That makes it easy to upgrade or downgrade if your needs or travel habits change.

Before you downgrade an airline or hotel credit card, inquire about retention offers. These types of cards often have more widely available offers if you're willing to accept bonus points in lieu of a fee waiver.

Managing Your Product Change

When you change from one credit card to another, your credit line and interest rate stay the same. Your bank login information will also stay the same and you can use the old card until you receive the new one in the mail, making card management as simple as it gets.

Most card numbers will also stay the same, although there are exceptions. If you used that card for any automatic bill payments, double-check to see if you were issued a new number so you can update your bills if needed.

Evaluate Your Options In Advance

There's no clear cut answer to whether you should hold, cancel or product change a credit card without evaluating your options before your annual fee comes due.

If you're strapped for cash—or not using your card benefits anymore—keeping a card with an annual fee might not make sense unless you get a retention offer. On the other hand, downgrading to a cheaper or free option means you're giving up benefits that might be valuable to you. A quick evaluation will help you make a confident choice on how to proceed.

And if you're like Keri Anderson, you might decide that keeping and paying for your cards is still the best option. She's not canceling her Alaska Airlines credit card and is optimistic about using the benefits of the card, including a companion pass, for future travel.  "As soon as this is over, I hope to be back on a plane and the companion pass will be well worth the [annual] fee."


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