Don't Cancel That Card: Alternatives to Getting Around Annual Fees
May 24, 2017
My first premium credit card was the Citi Prestige MasterCard. It will always have a special, special place in my heart. With its 3x points on travel and 2x points on dining and entertainment, it is an incredible earning card. Couple that with its Admirals Club Access (when flying American Airlines) and $250 annual travel credit, this was a downright steal for me at $200 per year ($450 annual fee minus the travel credit).
Unfortunately, the card is losing its Admirals Club access in July, the main reason that I kept the card. My annual fee was due next month, so I had a big decision to make-- do I cancel?
First, some background on why I was in this situation, and then some advice for when it makes sense to keep or cancel your card:
The Prestige Card also comes with a 4th night free benefit that can be insanely valuable for many people, but I don't pay out of pocket for stays that long. So without that benefit and also losing Admirals Club access, did it make sense for me to pay a $200 annual fee?
Sure, its earning structure is great, but I value American Express' Membership Rewards points higher due to its transfer partners and my Platinum Business Card's point redemption rebate, so I don't have much use for Citi's ThankYou points. I still have roughly 86,000 TY points (I had transferred 75,000 points to Air France a while back that didn't work out), and also have Citi's lower-tier Premier card that comes with a $95 annual fee that is pretty easy to get waived. My points were safe regardless of what I did since I combined the two accounts.
The regular option would have been to cancel the card and move on without the annual fee. BUT, remember that a massive benefit of having a credit card is establishing a good, solid credit history by paying off your balance each month. If I had cancelled the card, I would have lost that history (over two years worth) which would have hurt my credit score.
Another effect would have been a higher utilization rate, since I have a substantial credit limit on the card (premium cards often will give higher credit limits) which would be difficult to get from a different, lower-tier card.
So what did I decide to do?
I listened to a couple of retention offers, none of which worked for me as I wasn't interested in accumulating any more TY points. However:
There is another option that's often overlooked -- downgrading your card.
Downgrading your card maintains all of your history with that card, but bumps you down to a no-fee option that usually comes with lower perks/rewards, but that shouldn't matter since you would cancel the card otherwise.
Luckily, Citi has a no-annual-fee option in the form of the Citi ThankYou Preferred card that I downgraded to, so I don't have to worry about losing any history.
You can do this with pretty much every premium card (or any card with a fee) and it can be a great option when you no longer get enough value to justify an annual fee.
Always remember to ask for retention offers first though!
Cancelling your card should always be the last resort.