First, it’s important to state that it is NOT our place to tell you when to close your credit cards. You must make the determination whether these cards are providing you the value you need for the ongoing annual fee. If so, keep them open!
If you do close your card, the larger concept to remember is that you absolutely do not want to lose your points! That’s what we want to explore today, so let’s look again at the 3 main types of travel rewards cards as they relate to closing cards:
The 3 Types of Cards and Not Losing Points
1. Fixed Value Credit Cards:
Fixed value points from the Capital One Venture Rewards Credit Card, Wells Fargo® Propel®, and Capital One Spark Miles for Business and similar cards reside in your credit card account. There is no way to transfer these points out of your account, so you must redeem them before closing the card.
If by some chance you still have tens of thousands of points remaining (and thus hundreds of dollars of value), you could strongly consider paying the fee to keep these points alive for one more year.
Alternately, you can cash them in for 1/2 value as a simple statement credit. So 40,000 points would normally be worth $400 for a travel redemption but it would only be worth $200 as a cash statement credit.
Either way, you should not allow these points to be lost when you close the card, so plan accordingly.
2. Co-Branded Airline & Hotel Cards:
These points were already sent from your credit card account to your rewards account at the airline/hotel, so they are no longer related to the credit card. You can close your card without losing any points previously earned. These points of course are still subject to the expiration policy of the airline/hotel, but you would not lose them when closing your card.
Quick Tip: You can extend the expiration on all your points in the airline/hotel account by making one small purchase on the credit card the month before you plan to close the card (and pay it off before you close the account). Even a $2 cup of coffee will send 2 points to your rewards account and that will ‘reset the clock’ on your entire store of potentially tens or hundreds of thousands of points.
3. Transferable Points Cards:
Transferable points like Chase Ultimate Rewards, AMEX Membership Rewards and Citi ThankYou reside in your credit card account. If you close the credit card while the points are still there, you would in fact lose them.
The real simple way to avoid losing your points is to transfer them to a partner airline/hotel before you close your credit card. Once transferred, they are yours to keep.
We prize these transferable points for their flexibility, so in a perfect world you can retain them in a different credit card account and retain that transfer flexibility for a future redemption.
Example: Let’s say Brad has a Chase Sapphire Preferred Card with 50,000 points and he needs to close it. His wife Laura has a Chase Ink Business Preferred Credit Card account that she just opened recently. Brad can transfer his 50k Chase UR points to Laura’s account and combine the points there, thus retaining the flexibility until Laura has to close her card a year later.
You can combine your Chase UR points with another one of your Chase UR cards or with a card held by your spouse/domestic partner.
The strategy for AMEX Membership Rewards would be to open another MR earning card such as the Blue Business Plus. This no annual fee card still allows you to keep your MR alive instead of speculatively transferring.
Brad’s Card Closing Consideration:
Like my entire travel rewards strategy, I take the low stress approach to closing my cards. Alexi will explain his optimized version, but mine is much simpler.
I track when I open every card and I have a simple formula built in to show the date 11 months later, which is when I need to make the decision to keep the card open or close it. I glance at my spreadsheet every so often to make certain I’m aware of upcoming card closing requirements.
When I do make the decision to close a card, I first make certain that I’m not in danger of losing any points as we described above.
Then I just call up the number on the back of that card and to paraphrase, here is what I tell them,
“I’d like to close my credit card today; I’m not really using this credit card any longer and with the annual fee coming due in the next few weeks I just can’t justify paying the $xx dollar fee. I recently opened a new card from X Bank and I intend to use that one going forward, so I’d appreciate if we can cancel this card today.”
It is usually a 2-5 minute phone call and I’ve never had an issue with a surly representative or anything.
On occasion they will offer to waive the annual fee for the next year or offer an annual retention bonus, and in that case I’ll gladly keep it open.
Alexi’s Card Closing Process:
My approach to closing cards is slightly different from Brad’s, but not much.
I am not a spreadsheet guy for the same reason that I’m not a very good photographer: I lack the discipline to step away from my own life and record events. Although I am more than happy to crunch numbers, I know myself well enough to know that I cannot be relied on for reliable data entry.
The first step for me is deciding whether I want to close the card at all. I happily keep my favorite cards (like the Chase UR premium cards) open and pay the annual fee because the benefits of those cards are well worth the annual fee to me. For other cards, however I find that I no longer have them in my wallet after a year and I just can’t justify paying an annual fee on an unused piece of plastic.
I think the sweet spot for closing those no longer useful cards is about 10-11 months after I have opened them. The reason for this is that there is still some time on the clock, so I can finish paying off my bills and get credit for all of my points earned if I have a remaining balance.
In any case, the way that I keep track of my card openings, for the purposes of the timing of account closures, is that I keep all of my cards wrapped in a rubber band in a sock drawer. I order the cards chronologically by the month of their expiration dates, which almost always corresponds to the month when the annual fee will be charged.
So if the month were March I would pull out all of my cards with a May expiration date and determined what needed to be done with those cards.
What I personally do these days requires even less organization: I wait for my annual fee to be charged on my bill and then if I no longer want the card I call customer service to discuss the cancellation.
I am alerted to the annual fee both via a Mint.com alert, and the “fees charged” line on the credit card statement which I dutifully check on every monthly (paper) bill.
Using this method I’ve never had to actually pay an annual fee I didn’t intend to, but I will admit that there is some small risk of having to do so in the future.
There are several advantages however, as I see it.
- I don’t have to really keep track of anything, just reflexively react when the annual fee comes due.
- Tracking annual fees is almost effortlessly incorporated into another task which I must do periodically anyway: paying bills.
So that’s my system and it works for me. And Brad’s system is every bit as solid. The key, of course, is to find the system that will blend in with your own lifestyle and personality, to minimize work and the chance of failure.