S2E2: Maximize Your Rewards: The Ultimate Guide to Credit Card Cancellation

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<v Speaker 1>Closing Credit Cards for Maximum Value.

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<v Speaker 1>Today, we're talking about closing credit cards for maximum value.

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<v Speaker 1>In the past three years, my husband and I have opened about 25 credit cards and closed 10 of them.

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<v Speaker 1>In the next year, we plan to close 10 more.

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<v Speaker 1>If you get into this hobby, you're going to acquire lots of credit cards, but you don't have to keep them all.

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<v Speaker 1>You do need, though, to learn to close your cards with the least amount of impact to your credit score, the best chance of being able to keep earning welcome offers with banks and with the most value to yourself.

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<v Speaker 1>Welcome back to Season 2 of Points for Normal People.

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<v Speaker 1>I'm Katie, and I'm here because I know that travel costs add up, especially for a family, but I believe that travel isn't just for the rich.

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<v Speaker 1>That's why, on Points for Normal People, I share the tips and tricks that my family has been using for over a decade to help you use your everyday expenses and credit card welcome offers to supercharge your travel points so that you can pay for entire vacations every year.

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<v Speaker 1>This episode is by far my most requested episode to date, and I probably should have put it into season one, because it's really good information for beginners to have, but it also fits in with our discussion of the Southwest Companion Pass, which we started last week.

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<v Speaker 1>I'm going to go back to more Southwest tips next week, but this week wanted to pause to flesh out specific tips on when and how to cancel cards for maximum value.

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<v Speaker 1>Let's start with the most obvious reasons you would want to close a card.

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<v Speaker 1>Then we'll talk about what questions you can ask before you close a card, so that you can do it well.

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<v Speaker 1>The first big reason you might close a card is when the annual fee doesn't outweigh the benefits for you.

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<v Speaker 1>Really, this is a question that no one else can answer, but you Credit cards that I've opened have annual fees ranging from $0 to $695 a year, and sometimes the ones with a $695 annual fee might be more valuable to you than one with a $49 annual fee.

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<v Speaker 1>Let's take a generic example of a hotel card.

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<v Speaker 1>There are lots of hotel cards out there with an annual fee of about $100 that give you an annual free night certificate every year on your card member anniversary.

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<v Speaker 1>Now, it's not really free because you're paying that $100 annual fee.

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<v Speaker 1>If you're a person that would pay to stay at a hotel anyway every year, it's probably worth it to keep a card like that.

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<v Speaker 1>Usually with my hotel cards, I can use those certificates to book a hotel that costs about $250.

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<v Speaker 1>So I think of it like a prepaid discounted hotel stay.

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<v Speaker 1>Since before we had hotel cards, we have enjoyed taking a staycation to Chicago once or twice a year and spending a night or two in the city, even though we only live about an hour outside of Chicago.

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<v Speaker 1>We used to hunt for deals so that we could find a hotel for about $100 a night, but once we started opening hotel cards, we started using our free night certificates instead.

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<v Speaker 1>It ends up costing us about the same, but instead of staying at a Holiday Inn Express, we can now stay at the Intercontinental on Michigan Avenue for the same price to us.

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<v Speaker 1>So we've been able to upgrade our experience.

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<v Speaker 1>But if you rarely stay in hotels, paying $100 a year and getting an annual free night is probably a waste of your money.

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<v Speaker 1>Just because someone on a blog post or social media says they love a card's benefits doesn't mean those benefits will be valuable to you and your lifestyle.

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<v Speaker 1>I recently got rid of my Platinum card from American Express, which has a hefty $695 annual fee, after years of holding it.

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<v Speaker 1>A lot of people love this card, but for me it just wasn't adding up to enough value to keep it anymore.

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<v Speaker 1>I think you should be asking yourself every year for every card you have do the benefits outweigh the annual fee?

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<v Speaker 1>That's one of the things I love about the Travel Freely app and website, since I've loaded all my cards into there.

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<v Speaker 1>Every time an annual fee is coming due it sends me a reminder and it's a trigger for me to walk through the process to see if the annual fee still outweighs the benefits for me.

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<v Speaker 1>So that's the first reason you might want to consider closing a card.

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<v Speaker 1>The second main reason people consider closing a card is if they want to get the welcome offer on that card again.

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<v Speaker 1>That's because, generally speaking, you can't earn a welcome offer on a card that you currently hold.

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<v Speaker 1>There's also typically a waiting period since you earned your previous bonus.

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<v Speaker 1>It might be that you have to wait 24 months since you previously opened the card, or 48 months or even 7 years.

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<v Speaker 1>This waiting period will vary by card and bank and these terms can change.

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<v Speaker 1>Let's say, I have an American Airlines card that I've had for 5 years and I've kept it because I like the free bags benefit, but I really want to earn one of those big welcome bonuses again.

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<v Speaker 1>I could look at the terms and conditions on the new card member offer and maybe I see I'm eligible if it's been 48 months since I earned a welcome bonus and if I'm not currently a card member.

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<v Speaker 1>Since I've had my card for five years, I know it's been more than 48 months since I earned my bonus, so I know I'm eligible on that part of the terms.

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<v Speaker 1>But the second part means I'd need to cancel my current card before I could apply for a new one and earn a new bonus.

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<v Speaker 1>If you're in either of these situations realizing that you want to close a card because the annual fee just isn't worth it to you anymore, or because you want to apply for the same card again there are still some additional questions you'll want to ask before you proceed.

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<v Speaker 1>These questions will help you protect your points, protect your credit score and might even bring you more value and here's my first caveat and might even bring you more value.

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<v Speaker 1>And here's my first caveat.

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<v Speaker 1>While this episode is about canceling cards for max value, there's a bit of an asterisk here.

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<v Speaker 1>There are actually three options total for all of the cards in your wallet.

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<v Speaker 1>You can keep a card, you can cancel it or you can product change it.

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<v Speaker 1>The specific term downgrading refers to changing from a credit card with a higher annual fee to one with no annual fee or a lower annual fee.

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<v Speaker 1>You can also upgrade a card to a version with a higher annual fee.

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<v Speaker 1>When you product change a card, it typically has the least impact to your credit score Because, even though the card product or precise credit card in your wallet will change, a bank generally keeps the same account number.

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<v Speaker 1>That means if you open a card in 2020 and then product changed it in 2024, it's going to appear as one continuous card since 2020 on your credit report.

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<v Speaker 1>We'll talk about how to make a decision later on that and more factors that go into it, but I wanted to introduce those terms now so that and more factors that go into it.

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<v Speaker 1>But I wanted to introduce those terms now so that they are familiar as I walk through the episode.

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<v Speaker 1>Any time you find yourself realizing an annual fee isn't worth it to you or that you want to earn another bonus on a card you already have, you can go through this list of questions First you want to ask.

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<v Speaker 1>Will I lose my points if I close this card.

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<v Speaker 1>This will depend on the type of card you have.

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<v Speaker 1>If your card is an airline or hotel card, those points have been transferred to the airline or hotel loyalty program, so those are already safely kept there, even if you cancel the card.

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<v Speaker 1>But if your card is a card that earns bank points that have various transfer partners, but if your card is a card that earns bank points that have various transfer partners, like the ultimate rewards we talked about in season one or something like city thank you points or American Express membership rewards you can lose your points if you just straight out cancel your card.

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<v Speaker 1>So you'll need to do some research before you close a card with transferable points to make sure you're not going to lose them.

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<v Speaker 1>One simple way to keep transferable points alive is often to downgrade your card to a card with no annual fee or a lower annual fee instead of simply canceling it, or to combine your points with another card or stash of points from the same bank.

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<v Speaker 1>As of now, most major banks have this largely unadvertised perk where you can combine your points across a few cards.

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<v Speaker 1>This means as long as you keep one, you can keep any points that you've earned alive.

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<v Speaker 1>Sometimes this is done automatically and sometimes you have to manually combine your points.

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<v Speaker 1>Some banks will even let you transfer your points to a household member or a partner or a spouse or a friend, but you do need to be mindful of this question of will I lose my points if I close before you go closing a card, because you want to make sure you have a plan to keep your points alive.

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<v Speaker 1>Now, related to this is the question will I lose the ability to transfer my points to travel partners if I close my card?

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<v Speaker 1>Now a lot of banks have a similar structure to their card offerings.

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<v Speaker 1>They often have cards that earn cash back and they have an annual fee of $0, and cards that earn bank-specific points that have annual fees of $95 or more.

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<v Speaker 1>Citi, for instance, has the Citi Custom Cash and the Citi Strata Premier Custom Cash has a $0 annual fee and earns cash back.

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<v Speaker 1>Strata Premier earns thank you points, but if you have both, you can combine your cash back with your thank you points and then you'll have all the options to redeem them for cash back or you could redeem all of them to transfer to travel partners If you cancel your Strata Premier the $95 fee card or you downgrade it to another custom cash card.

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<v Speaker 1>Your points are technically going to stay alive.

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<v Speaker 1>They will be there in your account, but now they will only be redeemable for cash back.

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<v Speaker 1>By downgrading to a cash back card, you will have lost the ability to transfer them to airline and hotel loyalty programs.

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<v Speaker 1>So downgrading in this instance would solve one problem the problem of an annual fee.

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<v Speaker 1>It also prevents you from totally losing your points.

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<v Speaker 1>But it's not ideal because it does cause your points to become less valuable and less flexible because they'll only be redeemable for cashback.

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<v Speaker 1>Now, if the reason you're downgrading a card is to get a new bonus again, it might not matter to you that you're losing this ability to transfer points because you plan to get it back as soon as you reopen the card again.

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<v Speaker 1>But if you're downgrading a card that has transferable points to avoid an annual fee and that means you'll lose the ability to transfer your points, you will want to decide how to transfer your points before you downgrade.

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<v Speaker 1>If you're saving up for a specific trip, this might be an easy decision for you to make as far as where to transfer your points, but personally, often I only transfer points when I'm fully ready to book, since availability can vary so much and, to be honest, we don't plan that far ahead, so it can be hard for me to pick where to transfer them to.

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<v Speaker 1>For this reason, sometimes in our household we choose to pay an annual fee for an extra year just to keep that flexibility of transferring out points and keep in mind that some banks let you transfer points to other people in your household, so sometimes you can keep your points alive and transferable that way too.

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<v Speaker 1>I'm in the process of creating a blog post resource on this to compare different bank policies so you know different options to keep different kinds of points alive.

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<v Speaker 1>If you want to be sure to be notified when this is live, be sure to get on my weekly newsletter list.

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<v Speaker 1>That's also the best place to stay informed on increased card offers.

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<v Speaker 1>You can sign up for that in the show notes.

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<v Speaker 1>If you grab my Travel Points 101 guide, it will also get you on my mailing list.

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<v Speaker 1>Once you've determined how to keep your points safe, you want to ask are there any benefits?

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<v Speaker 1>I can get one more time.

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<v Speaker 1>This is typically most applicable to hotel cards and sometimes to airline cards.

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<v Speaker 1>If you have a card that gives you anniversary points or anniversary free nights.

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<v Speaker 1>You can often get this one more time before you close a card.

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<v Speaker 1>This works because after your annual fee posts you have 30 days to call and close a card and get a full refund of that annual fee.

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<v Speaker 1>But many of those anniversary points or free night certificates will get dropped into your loyalty accounts within days of the annual fee posting.

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<v Speaker 1>So there's usually a period of a few weeks when you've gotten your anniversary bonus but you still have time.

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<v Speaker 1>You're still in that 30 day window to cancel your card.

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<v Speaker 1>Now this doesn't work for all cards.

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<v Speaker 1>American Express, for instance, usually doesn't give the anniversary nights for the Marriott cards for about six to eight weeks after your annual fee posting.

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<v Speaker 1>So it won't work in all cases but it does work, for instance, with some airline cards like Southwest that offer anniversary points.

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<v Speaker 1>So if you have an annual benefit, it's certainly worth watching closely to see when your annual fee posts and when your annual benefits post, to see if you can get in that sweet spot where your annual benefits posted and you still have time to cancel your card and get a full refund.

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<v Speaker 1>Another question to ask is should I keep this card so I can refer other people to it?

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<v Speaker 1>Other people might just be your partner or spouse.

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<v Speaker 1>If you and a partner are going back and forth with earning companion passes every few years, you'll want to keep at least one card alive until you can refer your partner.

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<v Speaker 1>That's because current referrals for those cards are worth $250 to $300.

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<v Speaker 1>So you have to remember to add in the value of known future referrals to your annual fee equations.

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<v Speaker 1>Not all cards have referrals but some do, and if you've referred someone from your card and your referral hasn't posted yet, that sometimes will be a reason to keep it one more year, depending on the value of the referral bonus.

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<v Speaker 1>Another question to ponder is how will closing this card affect my relationship with this bank?

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<v Speaker 1>This isn't as black and white to answer, but this question is one reason we often prefer to downgrade a card rather than straight out cancel it.

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<v Speaker 1>Banks want good customers.

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<v Speaker 1>They want customers who stick around and use their products.

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<v Speaker 1>If you're continually opening cards for 12 months and then closing them immediately after 12 months, you don't look like the best customer, typically if you're into travel points.

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<v Speaker 1>Let's be honest, you're not a very profitable customer for the bank, but we don't want to make that so obvious to the bank.

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<v Speaker 1>We want to show a little loyalty because we can honestly say we love their products, or at least those welcome offers.

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<v Speaker 1>Because of that it can be a good general practice to see if there's at least one card you can keep open with each major bank long term.

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<v Speaker 1>Now you don't want to go out and acquire all of these cards for all of the banks all at once.

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<v Speaker 1>That would wreck your 524 score.

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<v Speaker 1>But over time, as you acquire them, you can try to keep one per bank at least to keep that relationship alive with each bank.

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<v Speaker 1>Related to that is the question how will closing this card affect my credit score?

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<v Speaker 1>This is going to vary a lot person to person.

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<v Speaker 1>First of all, if it's a business card, it shouldn't really affect your credit score at all to cancel it.

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<v Speaker 1>So if you're evaluating a business card, you mostly get to skip this question.

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<v Speaker 1>If it's a personal card, it's going to depend a lot on the strength of your credit score.

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<v Speaker 1>Canceling a card primarily affects two parts of your credit score.

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<v Speaker 1>First, it can affect your average length of credit history and your payment history, but usually not for a while.

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<v Speaker 1>That's because cards in good standing usually stay on your credit report for 10 years.

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<v Speaker 1>So if you choose to cancel a card you've had for a long time, just be sure you're also keeping others that have a decent credit history, or that you're opening one that you plan to keep for a while.

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<v Speaker 1>That way, by the time your closed card falls off your report in 10 years, you have another card that you've had for at least 10 years with good payment history.

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<v Speaker 1>Canceling a card can have an immediate effect on your credit utilization, though Credit utilization refers to the total credit extended to you versus what you have used.

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<v Speaker 1>This factor is 30% of your score.

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<v Speaker 1>If you have a lot of credit cards, you're likely to have a lot of credit extended to you, and if you're following best practices for travel points, you likely aren't using much of your credit because you're not carrying a balance.

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<v Speaker 1>You're paying off your card in full, so this factor might not affect you very much at all.

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<v Speaker 1>But if you have some credit card debt, or if you only have one to two cards, or if the cards that you're keeping have very low credit limits and you're closing a card with a very high credit limit, you might take a bigger hit.

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<v Speaker 1>If you close a card, one way to diminish that hit to your credit would be, first of all, to downgrade instead of cancel.

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<v Speaker 1>If that's not an option, and if you have other credit cards with the same bank, it's worth asking if you can move credit over to a card that you plan to keep.

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<v Speaker 1>That will keep your credit utilization at a similar rate even though you're canceling one more card.

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<v Speaker 1>You can just call a bank and ask can I move my credit limit from card A to card B?

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<v Speaker 1>Another option if you're in a two-player household and, let's say, one person wants to cancel an older card, would be to see if there's a card that the second person could add you onto that they have had for a long time.

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<v Speaker 1>That can help you inherit some of that longer credit history on their card.

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<v Speaker 1>Now, once you've gathered all your answers to all of these questions, you can decide if you want to keep the card, cancel the card or ask for a product change.

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<v Speaker 1>And once you've made your decision, if the answer is to cancel or product change your card, you can simply call the number on the back of your card and ask to do that.

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<v Speaker 1>Occasionally, they might offer you a retention offer and this might change your calculation.

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<v Speaker 1>A retention offer is basically the bank trying to keep your business for another year and you can, in fact, proactively call on all of your cards if you choose to do so.

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<v Speaker 1>You can call on a card you're planning to keep and say I'm considering canceling my card.

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<v Speaker 1>Do you have any retention offers?

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<v Speaker 1>Sometimes they might offer a partial waiver of your annual fee or a bonus of a certain number of points if you do some more spending.

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<v Speaker 1>Most of the time you'll get offered nothing, but it can be worth asking if you have the time.

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<v Speaker 1>If you accept a retention offer, you can start the evaluation process for that card again in a year.

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<v Speaker 1>If you reject it, you'll just proceed with cancelling your card.

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<v Speaker 1>Make sure to make a note of when you cancelled your card in your records or note it in the Travel Freely app if you use it.

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<v Speaker 1>Travel Freely also has an option to show that you product changed the card.

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<v Speaker 1>If you cancelled a card so that you could reapply for it again, you'll want to wait at least 7-14 days before reapplying.

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<v Speaker 1>30 days would be even better.

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<v Speaker 1>It can take that long to fully clear out the previous card out of the system.

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<v Speaker 1>Sometimes, if you reapply too soon, you can get an auto-denial because it thinks you still have the card.

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<v Speaker 1>If you're planning to reapply, you'll also want to pay off your bill right away if you have a balance.

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<v Speaker 1>Sometimes the system still considers you to have the card as long as you have an open balance and if your account is set to auto-pay, it might not be scheduled to pay for a few weeks.

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<v Speaker 1>Better just to pay it off manually right away.

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<v Speaker 1>Before you reapply, you'll also want to reread the terms and conditions for that specific card closely.

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<v Speaker 1>In my free course in Lesson 28, I walk through how to find and read the terms for cards to make sure you're eligible to reapply.

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<v Speaker 1>Again, this varies by card and it can change.

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<v Speaker 1>It's usually between 24 and 48 months.

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<v Speaker 1>With American Express the language is often vague, but in practice the waiting period is typically seven years.

00:19:51.869 --> 00:19:57.067
<v Speaker 1>I hope that gives you a good overall strategy for how and when to close your credit cards.

00:19:57.830 --> 00:20:08.007
<v Speaker 1>As far as action steps today, I'd encourage you to look through your credit cards and start the process of evaluating them with the first question Do the benefits outweigh the annual fee?

00:20:08.007 --> 00:20:13.553
<v Speaker 1>You'll likely have some that will instantly go into a yes pile and you won't have to think about those anytime soon.

00:20:13.553 --> 00:20:20.856
<v Speaker 1>But you'll also likely have some that might be a no, and then you can start down the list of other questions to help you determine how to proceed.

00:20:20.856 --> 00:20:23.814
<v Speaker 1>Will I lose my points if I close this card?

00:20:23.814 --> 00:20:27.915
<v Speaker 1>Can I combine these points with another card before I cancel?

00:20:27.915 --> 00:20:32.871
<v Speaker 1>Will I lose the ability to transfer my points to travel partners if I close my card?

00:20:32.871 --> 00:20:34.977
<v Speaker 1>If yes, am I okay with that?

00:20:34.977 --> 00:20:37.926
<v Speaker 1>Do I want to transfer points before closing?

00:20:37.926 --> 00:20:41.175
<v Speaker 1>Are there any benefits I can get one more time?

00:20:41.175 --> 00:20:44.727
<v Speaker 1>Should I keep this card so I can refer other people to it?

00:20:45.347 --> 00:20:50.916
<v Speaker 1>How will closing this card affect my relationship with this bank and do I have at least one card left with this bank?

00:20:50.916 --> 00:20:52.405
<v Speaker 1>How will closing this card affect my relationship with this bank and do I have at least one card left with this bank?

00:20:52.405 --> 00:20:56.375
<v Speaker 1>How will closing this card affect my credit score, specifically credit utilization?

00:20:56.375 --> 00:21:02.430
<v Speaker 1>And finally, don't forget to ask the fun and lucrative one when can I apply for this card again?

00:21:02.430 --> 00:21:11.106
<v Speaker 1>That date you might want to mark on your calendar, or at least make a note of it, so that you can factor that new application into your overall strategy.

00:21:11.106 --> 00:21:18.977
<v Speaker 1>If you want specifics on certain banks or cards, sign up for our newsletter to be notified when our post is released with the policies for each bank.

00:21:18.977 --> 00:21:27.931
<v Speaker 1>If you're curious for more factors, specifically on the Southwest cards, this is included as a lesson in my free course in the Southwest Companion Pass Boot Camp module.

00:21:27.931 --> 00:21:35.656
<v Speaker 1>Thanks so much for spending time with me today and I look forward to seeing you next time, where we will continue to unlock these secrets of travel points together.