Pros and cons of downgrading your credit cards right now

Nov 15, 2020

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Editor’s note: This story has been updated with the latest information. 

The rapid explosion of the premium credit card market is predicated on a simple belief that by paying more upfront (in the form of annual fees), you can reap large, ongoing rewards through travel credits and other luxury perks.

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Unfortunately, with travel largely diminished around the world, many customers are now unable to use the perks they paid so much for. Today, we’re going to take a look at some of the pros and cons of downgrading your credit cards right now.

Related: When can you downgrade your credit card account?

Pros of downgrading

For the purpose of this post, I’m going to assume that your annual fee is due soon, because otherwise there’s no real benefit to downgrading now as opposed to waiting. If your annual fee is coming up, downgrading or even canceling your card outright might be a very tempting option.

Annual fees on most premium credit cards can top nearly $600, and given the unpredictable state of the world, keeping that money in your bank account might be smart. No one knows how long this pandemic will last. Now is a time to put your financial security first and travel rewards second, and that nearly $600 could help if you end up out of work for an extended period of time.

Related: Best rewards credit cards

Keep in mind that some cards are offering an annual fee waiver or benefit reimbursement — you typically have to call the issuer directly to receive any type of retention offer.

These vary by issuer and also from person to person, but they generally take the form of a reduction in the annual fee, courtesy points or bonus points after reaching a certain spending threshold. If you receive an offer, it might be enough to offset your entire annual fee, or at least the travel-related perks you’re currently unable to use.

Related: Your ultimate guide to credit card retention offers

Cons of downgrading

Before canceling or downgrading a credit card, it’s important to understand how that decision fits into your long-term plan.

Looking specifically at American Express credit cards, downgrading to a different product might prevent you from earning a welcome offer on that card in the future.

(Photo by Isabelle Raphael / The Points Guy)
(Photo by Isabelle Raphael/The Points Guy)

Let’s take the hypothetical of a customer who has The Platinum Card® from American Express. The up to $200 annual airline incidental fee credit and up to $200 annual Uber credit are how most people go about recouping the card’s $550 annual fee (see rates and fees), but they’re not as helpful in this current environment.

Related: 3 ways to use your Amex Platinum Uber credit while staying closer to home

Since you can only product change from one card to another, you might consider downgrading to the American Express® Gold Card — with its $250 annual fee (see rates and fees) — which offers an up to $120 annual dining credit and 4x bonus points on restaurants worldwide and U.S. supermarkets (up to $25,000 in purchases per calendar year; then 1x). The very first line of the terms and conditions of the Amex Gold application reads as follows:

“Welcome offer not available to applicants who have or have had this Card or the Premier Rewards Gold Card”

This means that simply by downgrading to the card now, you’d forever prevent yourself from earning a valuable welcome offer on it.

(Photo by Isabelle Raphael/The Points Guy)
(Photo by Isabelle Raphael/The Points Guy)

Another consideration is how long you’ve had your card open. If you’ve had this card for two or more years, downgrading should be fine, but some issuers (again, especially Amex) are sensitive to customers downgrading at or around the one-year mark. In fact, Amex includes broad language with most of its credit cards that allows it to claw back your original welcome bonus if you downgrade a card before the first year is up. Saving a few hundred dollars right now might mean forfeiting points worth twice as much.

The last reason you should think twice before downgrading your cards right now is the sheer uncertainty surrounding the feature. The coronavirus pandemic could continue to stretch out for months or even years to come, but also safety precautions can be taken into account and a vaccine may be on the way. We simply don’t know yet, and I, for one, know that when travel picks up again I’ll want all my premium credit cards (and their perks and bonus categories) in my wallet ready to go.

Bottom line

You should never do anything in the pursuit of travel rewards that jeopardizes your personal finances, and that includes paying hefty annual fees on premium credit cards with perks you aren’t able to use right now. However, you’ll also have to weigh the limited-time perks and benefits that are now available on travel cards and the potential for travel to pick up once again.

Related: Ten commandments for travel rewards credit cards

Additional reporting by Chris Dong

Featured image by The Points Guy

For rates and fees of the Amex Platinum Card, click here.
For rates and fees of the Amex Gold Card, click here.

American Express® Gold Card

With some great bonus categories, the American Express Gold Card has a lot going for it. The card offers 4x points at restaurants worldwide, at U.S. supermarkets (up to $25,000 per calendar year; then 1x), and 3x points on flights booked directly with airlines or through amextravel.com.

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More Things to Know
  • Earn 60,000 Membership Rewards® points after you spend $4,000 on eligible purchases with your new Card within the first 6 months.
  • Earn 4X Membership Rewards® Points on Restaurants worldwide, including takeout and delivery.
  • Earn 4X Membership Rewards® points at U.S. supermarkets (on up to $25,000 per calendar year in purchases, then 1X).
  • Earn 3X Membership Rewards® points on flights booked directly with airlines or on amextravel.com.
  • $120 Dining Credit: Earn up to a total of $10 in statement credits monthly when you pay with the Gold Card at Grubhub, Seamless, The Cheesecake Factory, Ruth's Chris Steak House, Boxed, and participating Shake Shack locations. This can be an annual savings of up to $120. Enrollment required.
  • No Foreign Transaction Fees.
  • Annual Fee is $250.
  • Terms Apply.
  • See Rates & Fees
Regular APR
See Pay Over Time APR
Annual Fee
$250
Balance Transfer Fee
N/A
Recommended Credit
Excellent/Good
Terms and restrictions apply. See rates & fees.

Editorial Disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airlines or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.

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