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5 Steps to Take Before Canceling a Credit Card

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Today, TPG Senior Points & Miles Correspondent Nick Ewen shares his strategies for making sure you get the most out your travel rewards credit cards when you decide they’re no longer needed.

Credit cards can unlock a world of travel thanks to sign-up bonuses, category bonuses and an array of other benefits. However, as with many other products out there, you may reach a point where keeping a card open is no longer worthwhile. Before canceling a card, there are several steps you should take to make sure you get the most out of it while you still can. Today, I want to share my list of the 5 most important things to do before you cancel a credit card.

Customer Service Phone reps
Call customer service to see if the issuer will give you a bonus to keep your card for another year. Image courtesy of Shutterstock.

1. Call to ask for a retention bonus or fee waiver.

Before you actually cancel the card, you should call the card issuer and see if they can offer you any type of retention bonus to keep the card. Most issuers don’t want to lose cardholders, so “retention specialists” can often provide some type of compensation for continuing to use the card. Here are some examples of offers you might receive:

  • “If you make X purchases in the next Y days/months, we’ll give you Z points/miles.”
  • “If you don’t cancel the card, we can offer you a one-time bonus of ___ points/miles.”
  • “We can waive the annual fee for another year.”

Remember that canceling a card is not a surefire way to improve your credit score. In fact, it almost always hurts your credit score by lowering your total available credit (thus increasing your utilization rate). Your length of credit history is another important factor that can be affected by canceling a card, since it includes the average age of your accounts. Why cancel if there’s no need? For more information, check out my colleague Jason Steele’s post on how credit cards impact your credit score.

2. Downgrade the card.

Another option is to downgrade to a lesser version of the card you’re trying to cancel. This keeps your credit line and history intact, and allows you to retain any points or miles you’ve earned. A great example of this is the Barclaycard Arrival Plus World Elite MasterCard, which comes with an $89 annual fee that’s waived for the first year. If you haven’t used the 50,000 miles you earned from the sign-up bonus by the end of year one, you can downgrade to the no-fee Barclaycard Arrival World MasterCard and keep the miles in your account. You’ll lose some of the benefits of the premium card, but that beats losing your rewards!

60,000 Ultimate Rewards points is enough for two nights at top-tier Hyatt properties like the Park Hyatt Sydney.
If you need to use Ultimate Rewards points before canceling your card, a free night at the Park Hyatt Sydney is a great redemption!

3. Use the points or miles you have earned.

If the first two suggestions don’t get you anywhere, the next thing you’ll want to do is use the points or miles you’ve earned on the card. Generally speaking, points and miles you earn with a co-branded airline or hotel credit card are yours to keep when they post to your account. Canceling a card such as the Citi / AAdvantage Platinum Select MasterCard should have no impact on the AAdvantage miles that have already shown up in your account.

However, currencies that are specific to a bank or credit card rewards program (including American Express Membership Rewards or Citi ThankYou Rewards) work differently. Be sure you use the points or miles you’ve collected before you call to cancel the card, since the account will be wiped out as soon as the cancellation is processed.

Here are some ways to use your points even if you don’t have immediate plans for them:

  • Transfer to a partner — Flexible points programs like Chase Ultimate Rewards and Membership Rewards partner with several airline and hotel loyalty programs, allowing you to transfer directly and (for the most part) immediately. If you want to cancel your card but you still have points in your account, transferring to travel partners will buy you some time.
  • Purchase gift cards — Though it’s generally not the most valuable redemption, most rewards programs allow you to use your points for a variety of gift cards (typically at a rate of 1 cent per point). If you have no other redemption option prior to canceling the card, at least this way you’ll get something out of your points or miles.
  • Redeem for cash or statement credits — A final way to quickly redeem points is for cash back. This could be in the form of statement credits or a check sent directly to you. Again, you typically won’t get maximum value when utilizing this redemption option, but it’s better than nothing!
Burning money featured shutterstock 245479693
You might as well burn some money if you don’t use your fee credits before cancelling a card! Image courtesy of Shutterstock.

4. Take advantage of fee credits.

Another critical step to take before canceling a card is to make sure that you’ve utilized any available fee credits. These can cover expenses like bag fees or other incidental purchases on airlines, Global Entry application fees or even airfare! Here are a few popular cards that offer various fee credits:

You’re leaving money on the table if you fail to utilize these credits, so take advantage of them before you cancel your card!

You don't want to incur a late payment fee or have a service cut off because you didn't update your credit card information.
You don’t want to incur a late payment fee or have a service cut off because you didn’t update your credit card information. Image courtesy of Shutterstock.

5. Change any auto-bill payments to a new card.

This final step won’t help you utilize the rewards on a card, but it can save you some money. Be sure to contact any merchants that auto-bill your credit card each month to cancel the automatic payment or change it to a new card. If the merchant tries (and fails) to run your cancelled card on the due date, you may be subject to late fees or other penalties. This only takes a few minutes, but it can prevent future headaches.

Bottom line

Canceling a card may not be the best course of action, especially if you can swing one of the first two items on this list. If you wind up deciding to close an account, be sure to follow each of these steps so you don’t miss out on potentially valuable rewards and/or savings.

What else do you typically do prior to canceling a credit card?

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