6 times to forgo big rewards for a basic, low-interest card

By  |  Published: August 4, 2017

Erica Sandberg
Personal Finance Writer
Consumer finance expert, author and “Opening Credits” columnist.

6 times to forgo rewards for a basic, low-interest card

Sometimes, downsizing from an expensive, elite card can make sense.

Elite rewards cards may come with a sign-up bonus of 50,000 or more points, travel benefits, VIP experiences and more. And as consumer credit scores reach new highs, more qualify for these high-annual-fee, perk-laden cards.

So why might some people eligible for such coveted cards be better off turning them down or giving them up in favor of more basic, plain vanilla credit cards? Under certain circumstances, it can be a rational decision, for example:

1. The benefits don’t outweigh the annual fee.
Credit card expert Jason Steele says the most common – and perhaps best – reason for kicking an elite card to the curb is how much it costs just to keep it active. On the highest end is the American Express Centurion Card, which has a $2,500 annual fee, but most premium travel card annual fees, such as U.S. Bank Altitude Reserve, Citi Prestige, Chase Sapphire Reserve, American Express Platinum, run between $400 and $550 a year.*

If the card benefits are redundant or unnecessary, it doesn’t make sense to pay the annual fee to keep the card.

Martina Garcia, a stay-at-home mom from Orange County, California, recently canceled her Chase Sapphire Reserve card. “It was very good, I had no problems with it, but when I had to pay again this year I decided not to,” she says. “My husband has the same card anyway, so I’m on his now and we get the same perks out of it.”

Today, Garcia has just one credit card, issued by her credit union. “It has no annual fee, it’s a nothing card, but it’s all I need for grocery shopping and things like that,” she says.

If you aren’t taking advantage of the rewards offered by a high-annual-fee card, then it’s time to reevaluate. According to a 2016 survey conducted by the American Institute of CPAs, only 15 percent redeemed card miles or points to offset vacation costs. So weigh the annual fee against the value of the card’s rewards. If you’re using the perks and getting more out of the account than what you’re paying in, stay. If not, reconsider.

“If you’re tempted by all the great rewards points to add on more debt than you can pay, steer clear. A rewards card is not for you.”

2. Your lifestyle changes.
Jeffery Moore used to work in the North Dakota and Canadian oil fields as a consultant, earning big money and traveling constantly. “My average monthly charges were reimbursed, so I never got into debt, and were usually over $10,000,” says Moore. “I had four of the best cards out there. I had so many points all my airfare was free. My FICOs were all over 800, and I was getting offered more cards all the time.”

Then Moore retired and moved out of the country. “I live in Vietnam with my wife and closed my AmEx card, all the rest,” says Moore. “I got rid of everything. House, partying, you name it. I don’t care about collecting points anymore. My life is simple. I have a debit card connected to my American bank and that’s it because that’s all I need.”

When debating renewing a credit account, evaluate your present and future needs. While elite card may have lost their luster for you, keeping your credit scores up is almost always a smart idea. Rather than canceling all your cards at once, try to keep your oldest credit card open and active, or choose to keep or apply for a credt card with a low or no annual fee. This way if you ever need to apply for more credit or a loan, your scores will be intact.

3. Rewards cards cause you to overspend.
One would think that someone like Kaja Olcott, communications director for RewardExpert, a service that helps people fly for cheap with miles and points, would have no trouble handling rewards-rich cards. Not so.

“I had to personally learn and figure out and manage my own spending,” says Olcott. “When I first signed up for the Chase Sapphire Reserve, I put everything on it. I hit the minimum spend in a month, not three! I managed to reel it back in, but it was hard. I got in the habit of spending a lot.”

Olcott says overspending to obtain a sign-up bonus of 20,000 to 100,000 points is common.

“To get the points banked, you have to meet the minimum spend, which can be $4,000 to $5,000 in usually three months,” she says. Hitting that mark in a short span of time can wind up as revolving debt. The accumulated interest is more expensive than the points are worth. To make it work, you must pay the bill in full.

“If you’re tempted by all the great rewards points to add on more debt than you can pay, steer clear. A rewards card is not for you,” says Olcott.

4. It’s too much work.
All credit card accounts need attention. You’ve got to track charges, keep balances in check, meet payment due dates, check statements for accuracy and address problems early. Elite cards require extra care and effort, says Steve Rhode, founder of the financial education website getoutofdebt.org.

“Rewards and the programs affiliated with them can be complicated to manage,” he says. “I’ve seen guys with 45 of these cards and bragging about it,” says Rhode. “It’s stupid. Every one of them requires work.”

To maximize points, particularly when you have multiple cards, you must be dedicated to the process. You have to figure out which card to use and on what, and understand how to trade the points in for goods and services at the greatest value. Even redeeming points or miles for a free ticket takes more time than just purchasing a plane ticket outright.

You can create a spreadsheet or use apps (like our free Wallet app or the one developed by The Points Guy) to stay organized, but if account management is too laborious, “clear out your wallet,” says Steele. “Trim the cards down to what you can handle.”

5. You redeemed all your points.
“I bounce back and forth between high- and low-end credit cards based on their rewards and miles offers,” says Joseph Spaid, a New York City travel consultant. “I’m a wicked mileage hustler, so I’ll cough up the $450 for a 75,000-mile sign-on bonus, but then drop back to a basic card at the end of 12 months until another outrageously good miles offer comes along.”

Spaid refers to it as “miles hustling” and treats it as a sport. After gleaning everything he can from an elite card, he closes it and relies on a no-annual-fee card to support his Delta Skymiles habit, since it’s his preferred carrier. “I pay for very few plane tickets these days,” says Spaid. 

Rapidly opening and closing rewards cards is called churning, and it’s risky. Deals won’t always be available, even if you stay out of debt and never miss a payment.

“Chase, for example, has a 5/24 rule,” says Olcott, explaining that it’s a guideline prohibiting approval if you open five or more Chase credit cards in 24 months. “They aren’t the only one. It’s getting harder to game the system.” 

Still, if you’ve squeezed all the juice from an expensive credit card and want to avoid paying an ultra-high annual fee that was waived the first year, that may be a smart choice.

6. You have a higher risk of fraud.
Credit card fraud is a fact of modern life, but hackers are turning special attention to elite cards. Data compiled by the fraud prevention company Forter found products such as the American Express Centurion Card experience more fraudulent activity than the vanilla card variety.

The reason thieves prefer elite cards is, surmised Forter, the high credit limits they tend to come with. Once thieves gain access to the card or the account numbers, they can charge many thousands of dollars before the cardholder or issuer detects unauthorized activity. For hackers, it’s good business. For you, it’s a pain in the neck at best. Recovering from fraud can require police reports, credit report and issuer disputes and more frequent credit report monitoring.

You can reduce the hassle of being hit by a credit card crook by opting for a standard card with a low limit instead.

Before closing elite cards, negotiate.
If your elite cards become too expensive or burdensome, and you are considering closing them, it’s worth a call to the card issuer first. “Before closing cards, call the company and request a fee waiver,” says Steele. “Some will drop it down or eliminate it.”

Another possibility is switching to a less expensive card from the same issuer. “Let’s say you have a premium card and you call and tell them you want to cancel because of the fee,” says Steele. “They may say, ‘How about we adjust you to a mid-level card?’” he says. Plus, the mid-level card may offer some of the same benefits as the elite card.

You needn’t wait for a credit issuer to offer; be proactive and ask if a product change is available. It not only can save you money, but it could protect your credit rating. You wouldn’t be closing an established account and opening a new one, which would negatively affect your credit score, but modifying what you already have.

In the end, though, if a basic credit card is preferable, fantastic.

“No-frills cards have their advantages,” says Steele. “Lots of people feel overwhelmed with the terms and conditions of elite rewards cards. It’s like renting a car with bells and whistles that are confusing, when you just want to get in and drive. Sometimes with a credit card, all you want to do is charge.”

*Disclaimer: The information on this page is accurate as of the posting date. Please see the bank’s website for the most current version of the offer.

See related: Plain-vanilla credit cards: 5 reasons to choose one, To curb spending, I’m making it harder to use my credit cards


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Updated: 10-18-2017

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