It’s Time to Reduce Your Credit Card Annual Fees

Two months ago, few people could have imagined we’d be where we are now. Life here in California has seemingly come to a standstill for those of us that are not essential workers, all as a result of Coronavirus/COVID-19. A huge THANK YOU to all our medical professionals, grocery staff, food service workers, and everyone else that works to provide essential products/services that we took for granted just weeks ago!

Most of us are staying at home. If you read this blog, you’re probably like me and have either already canceled travel plans or will soon be doing so. Airlines the world over have canceled flights and hotels are running at record low occupancy, and this all happened in a matter of weeks.

We’re not traveling anytime soon and we have no idea when it might be safe to do so again. Even when airlines do start flying again and governments decide it’s “safe” to travel, who knows when people will even feel comfortable doing so? It took months after 9/11 for airfare demand to return to some semblance of normalcy, and without a vaccine for COVID-19 there could be an ongoing fear for many for much longer than that.

All this has driven us into a recession (the slow government response certainly hastened this). Salaries have been cut, people have been laid off or furloughed, and we’re only at the beginning. While we hope for the best, unfortunately it seems prudent to plan for things to get worse. And with that in mind, I suggest one item to look at is your credit card portfolio.

Banks got greedy with the booming economy and low unemployment. Just two months ago, Chase upped their premium Sapphire Reserve card’s annual fee to a whopping $550. That brought it up to the same price as the Amex Platinum card’s annual fee. Heck, in November Amex was rumored to be working on a new card called “Optio” that would be even more expensive than their Platinum card and those rumors resurfaced earlier this month.

With uncertainty around future employment, with banks taking more money and decreasing the value proposition of many cards, and with travel in the near future being in question, it might be time to cancel some credit cards.

Here’s how I’d go about deciding on which to keep and which to cancel.

First, Some Strategy

Before I delve in to specifics, there are important considerations. The first is trying to maintain your current credit limits/lines. Canceling a credit card outright means you’ll lose that credit limit and it might lower your credit score as a result. More importantly, it might be harder to get back that same limit if you reapply during a recession.

Many banks allow you to transfer your credit limit between cards, so if you do plan to cancel a card, first try to transfer as much of that credit limit as possible to another card. I wrote a post on how to reallocate your credit limit with Chase (it can be done online) and DoC has a great resource for most credit card issuers. Unfortunately this won’t be possible with charge cards like the Amex Platinum and Gold cards.

Next, consider benefits that are duplicated in your wallet. Most premium cards will offer Priority Pass Select membership and Global Entry reimbursement. Or, often times our spouses or travel companions have cards with those same benefits that can be shared with us. If that’s the case, remember that the duplicated benefit is NOT providing value to you.

Thirdly, don’t forget that banks sometimes make retention offers when calling. They may waive annual fees entirely or give you some other bonus (often a certain number of points after reaching a spending threshold). When you call to cancel, try to fish for one of these first and see if you get something satisfactory to you. It’s early so banks may not be aggressively trying to keep customers yet, but it’s always worth a try.

And finally, remember that canceling certain cards can result in losing your points, usually on transferable points cards like Chase Ultimate Rewards, Amex Membership Rewards, or Citi ThankYou Rewards. Where possible, try to find a downgrade option that allows you to maintain those points. If you are set on canceling, make sure you transfer those points to an airline or hotel first, otherwise those points may be lost forever.

Hotel Credit Cards

Hotel credit cards often are the easiest to justify keeping in your wallet. Most of the cards with annual fees come with a free night certificate that generally offsets at least the annual fee you pay. Examples include the Chase IHG and World of Hyatt cards. In my opinion, these are good cards to keep because there’s little doubt you will be able to make use of them at some point in the future (sometimes the hardest part is remembering you have them). As a bonus, IHG has been extending free night certificates for those that call in and ask. You can read more about that here.

There are now premium co-brand hotel cards like the Hilton Amex Aspire card with a $450 annual fee. This card comes with a free weekend night, a $250 resort credit, a (hard to use) $250 airline fee credit, and top tier Diamond Status. That’s a lot of benefits. It’s also a high annual fee.

So if you plan on traveling in the next year, I’d say it’s generally worth keeping your hotel cards. Just make sure to utilize your cards’ benefits.

Airline Credit Cards

This one will be difficult. Most co-branded airline credit cards can be useful to those in certain situations. If you only take carry-on luggage, then priority boarding may be useful. If you check your bags, the free checked bag benefit can save you plenty of money. For the more premium cards, lounge access may be clutch for those frequenting airports with nicer lounges (yes, most lounges are closed now but will hopefully reopen).

This is where you will really need to evaluate how much you expect to travel on a particular airline over the next year. No one knows if/how/when travel will be a reality again, but would you feel comfortable flying again soon? If so, what are the chances it’ll be on the airline whose card you have? For example, if you have a Citi AA card but you plan on traveling internationally rather than domestically, you’ll likely have a better experience on an international carrier than on AA. Those credit card benefits wouldn’t apply in that case, and having the card would be a waste.

Personally, I think most people would be better off ridding themselves of most airline cards. There’s rarely a need to maintain one beyond the first year, especially if you’re playing the miles and points game.

Bank Credit Cards

Here’s where things get interesting. I recently compared the benefits of the Chase Sapphire Reserve to the Amex Platinum (spoiler: Amex loses in most categories). Both are expensive. Citi gutted credit card benefits for most cards including their $495 Prestige card. And yet, each card can still be useful for those whose spending patterns align with the benefits of a particular card.

Keep in mind there are lower-fee versions of each that will allow you to keep the points you’ve already earned. Amex has a Gold Card with a $250 annual fee that I think is worth keeping for it’s 4x on grocery/dining and other benefits. I even got a retention offer on it when I called a few months ago.

Banks also usually have an option in the $95 range that will allow you to keep your points and some benefits. Given the higher annual fee for the Sapphire Reserve card, I recently wrote a post on how to decide whether to keep that card or downgrade to the $95 Sapphire Preferred card. Citi offers the ThankYou Premier card for $95 if you’re looking to downgrade from the Prestige, and with Amex you can get either the Everyday Preferred card for $95 or the revamped Green card for $150.

There’s no doubt you’ll lose some serious benefits by doing this. No more airline fee/travel credits, no more Priority Pass lounges, and the points bonus categories will change and decrease. But again, how much will you really be making use of these in the next year?

Spouses and Authorized Users

Also consider the cards your spouse or companion (sometimes referred to as “P2” or Player 2) has. My wife and I both have the Sapphire Reserve card. Until this year it was worth it for both to maintain it, but it’s likely that we’ll only keep one with the higher annual fee this year.

And don’t forget about any authorized users that might be on your cards. I know some groups of friends/family share benefits of certain cards, which is a great way to subsidize the annual fee. An arrangement like this might work for you – just be aware that as the primary cardholder you’ll be responsible if the authorized users go on a spending spree.

Summary

We’re in a downswing, and unfortunately a lot of people will be looking to trim budgets. Furthermore, people may not be traveling much at all in the upcoming year depending on how things go these next few weeks and months. That makes now a good time to evaluate the credit cards in your wallet (and in P2’s wallet) and get rid of any cards with overlapping benefits that you can do without. Just be sure to save your points and try to preserve your credit limits, which may be difficult to regain if the downturn is prolonged.