Avoiding Annual Fees
App-O-Ramas create quite a dilemma. The best sign up bonuses, in general, are for cards that have annual fees, which can really negate any savings you get if you pay them. I have almost no credit cards with annual fees that I think are worth keeping the card despite the annual fee.
So, how can one get the bonus without paying the annual fee? If there is an annual fee the first year of the card there is no way to avoid it. Fortunately, most cards waive the annual fee the first year to entice you so our discussion will be limited to the annual fee of year 2.
Option 1 - Cancel Your Credit Card
The simplest, and least desirable, way of avoiding the annual fee is simply to cancel the card before the annual fee kicks in.
Drawback
- Canceling credit cards negatively affects your credit score because the average age of your credit cards is shorter if the card has been a long standing card and because your credit utilization will go up. I hope to explain this in part 5 of the series.
- You are also lowering your available credit if you every need it and you are losing leverage for the future, as I will explain in the second option.
Benefit
- You can sign up again for the same card to get the bonus a second time. Each credit card company has different rules regarding how long you have to wait between cards to get the new bonus so be aware of the fine print.
Option 3 - Consolidating Credit lines
I haven't tried it with other companies yet, but with Chase you can consolidate 2 credit lines into one.
For example, let's say you have a Chase Freedom with a $1,000 credit limit and a Chase United card with a $1,000 limit. You can ask Chase, via secure message or telephone, to consolidate the credit line of your United card onto your Freedom card. You will end up with a Chase Freedom that has a $2,000 credit limit and no United card.
Drawback
- You get no extra miles or points as compared to option four.
- You also lose any benefits of that particular card because it's closed.
- The more credit you have with one company the more risk the companies takes on. If you have way more than you will every use (a different number for each person) consider asking the company to lower your credit limit after consolidation.
Benefits
- Using credit lines in the future as leverage
- If you have a Chase Freedom with a $10,000 limit and you apply for the Chase Sapphire Preferred and are rejected, you can usually call and ask to allocate credit from an existing credit line to get the new credit card approved. In this example, you can ask for $5,000 to be transferred to Sapphire Preferred and you now have two credit cards with credit limits of $5,000.
- Your credit score is not affected
- You aren't really closing your credit history of this card, just transferring to a new card. Also, your utilization ratio stays the same.
Option 3 - Downgrade to a card without an Annual fee
Some credit card companies will allow you to downgrade you current card to a different card that doesn't have an annual fee. One example is downgrading a Chase Sapphire Preferred into a Chase Freedom.
Drawback
- You also lose any benefits of that particular card because it is closed out.
- If you don't already have the card with the annual fee, you may be losing an opportunity to get the sign up bonus for that card.
Benefits
- Using credit lines in the future as leverage
- Same as before
- Your credit score is not affected
- Same as before
Option 4 - Retention Bonus
This is my preferred option for a number of reasons. You can call up the credit card company and say something like this, "I really like you card and your miles, but I am thinking about closing it becauseI don't want an annual fee and I don't feel like I'm earning enough miles."
Usually, but not always, they will then offer to waive the annual fee for a year or give you extra miles to stay on or offer a spending target (ie - 10,000 miles for spending $1,000 this month) to earn extra miles.
If they don't offer anything, you can ask for it. "Can you please offer me a spending target to get extra miles?"
If they offer something, always ask if they can offer more. They won't rescind the previous offer and you may be able to get a better offer.
Check out this post from The Points Traveler who is a former representative for Citibank, I found it very helpful in my own retention bonus calls. He suggests asking, "What are the most number of miles you can offer me to keep my business?" They will have to tell you the highest offer.
Drawbacks
- You may have to call a few times to get the offer you want.
Advantages
- You keep all the advantages of your card because it is still open and often without an annual fee
- You get extra miles for free
- You can do it every year, theoretically.
- You can still do all the other options the next time if this doesn't work out.
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