Ditch or keep rewards card when annual fee comes due?

With sign-up bonus spent and big fee due, it's OK to shop around


Cashing In
Cashing In columnist Tony Mecia
Tony Mecia is a business journalist who writes for a number of trade and general-interest publications. He writes "Cashing In," a weekly column about credit card rewards programs, for

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Question Dear Cashing In,
I have gotten my first credit card, which is an American Express card, and I don't like it at all. I signed up for it because the credit card company offered an attractive sign-up incentive in frequent flier miles. However, I have found it hard to use for groceries and dining, because the retailers and restaurants I go to do not take American Express.

I would hate to pay high fees for spending so little. I have already redeemed my frequent flier miles before the date when they charge me the annual fee. I don't want to cancel the card because of the effect on my credit score, so it seems like downgrading is the only choice I have. Do you think this is common? And will they downgrade the card even though I already redeemed the miles? -- Victor

Answer Dear Victor,
Congratulations on getting your first credit card. I'm sure that has been an eye-opening experience.

How unfortunate that the places you most frequently go don't accept American Express. That reminds me of those old Visa ads telling people to take their Visa cards to a certain hip restaurant or sporting event because "they don't take American Express." 

While this seems like a dilemma, let's look at the bright side here. You signed up for a credit card and received a sign-up bonus of frequent flier miles. By paying your bill on time and in full, which I hope you are doing, you have improved your credit. And you have already redeemed the rewards, before your annual fee even comes due.

So you have taken free flights, and the only cost to you is the initial annual fee, which possibly was waived, depending on the card. Overall, I'd say that's pretty good. 

Now, there is the question of what to do next. I say all the time that if you are dissatisfied with your card, you should not hang on to it, especially if it carries an annual fee.

In this case, it sounds as though you should either cancel the card or downgrade it to one with no annual fee. 

You didn't specify the card. Assuming it is an American Express co-branded airline card such as a Delta SkyMiles card, there will be no effect on any remaining frequent flier miles, and the bank will not base any decisions on whether you have already spent those miles.

If you didn't earn actual frequent flier miles directly with an airline -- if you earned, for instance, American Express Membership Rewards points, which can be converted to frequent flier miles -- then you would lose any of those points if you close your card or downgrade to a card that is unattached to the Membership Rewards program. 

Just call American Express to ask if you can downgrade to a card with no annual fee. The bank might try to make you an offer to get you to hang onto the card, such as a promise of more miles for more spending or perhaps even waiving your annual fee, so think about what you might be willing to accept.

Asking a bank to downgrade your card is common. Sometimes they allow you to, but sometimes they don't. 

If you can't downgrade the card, closing it is not the end of the world. Closing an account might cause a slight drop in your credit score if you are carrying a balance. That's because you would be decreasing the amount of available credit and affecting your credit utilization ratio. Assuming you continue being smart about your finances and open another in its place, the drop should be only a temporary blip.

You might consider replacing the American Express card with a new card -- maybe a Visa or MasterCard with another sign-up bonus, and one that you can see yourself hanging onto for the long term.

See related: Downgrading a rewards card? You may be eligible for sign-up bonus, 5 tips for negotiating rewards cards' annual fees

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Published: March 22, 2016

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Updated: 10-24-2016

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