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If you are paying a credit card annual fee to earn rewards for flights, hotel stays or restaurant purchases, you may want to think twice. The dollars you are withdrawing each year can be more than getting back from your card, especially COVID-19 and giving away hobbies and spending habits. Should you pay a lower annual fee or no charge to your credit card?
If you can be tempted to cancel the card Annual Fee Right now you have more than you want to pay. But your credit score can be a hit, and downgrading is often a better option.
Before you do anything, understand what credit card upgrades mean, with pros and cons.
What happens when you downgrade a credit card?
“Most card issuers have other cards you can choose from within the same family of cards,” says Jim Miller, vice president of global banking and payments, JD Power.
When you downgrade a credit card, you keep the same account number and history with the credit card company. Typically, card issuers will do a soft job Credit check It does not affect your score.
Card issuers will not provide a sign-up bonus if you downgrade. Those allowances are generally reserved for new customers.
If you are upgrading your card because you are not using the perks you are paying for, you will want to find out what will happen to the unused rewards.
Some cards may not have downgrade options. In that case, you should contact your issuer to negotiate a lower annual fee or Consider canceling the card.
Should You Downgrade Credit Cards?
You may decide to downgrade credit cards for several reasons, including:
- You are no longer using premium credit card rewards.
- The annual fee is more than the benefits you receive.
- Credit card annual fees will no longer fit your budget.
- You are taking multiple credit cards with an annual fee and can no longer afford them.
“First, look at your spending habits and the rewards from the card to see if they align with your usage,” says Frank Fentozi, president and founder of Planted Financial Services in Cleveland.
It is a good idea to upgrade a credit card if you know that your annual fees exceed the value of your rewards. You will also need to make sure that you have your credit card for at least one year to qualify for a downgrade.
Stephen Newland, Find Your Money Path, a Sandy Springs, Georgia accredited financial counselor, says “There may be some restrictions, so check the conditions. This firm allows people to pay the budget, pay the debt And helps manage money.
If you do not have a card balance and you have a history with the card issuer, your chances of qualifying for a downgrade are the best. One caveat is that your issuer may take any welcome or sign-up bonuses earned when you downgrade.
What is better than canceling a credit card?
You may be tempted to cancel the card instead of downgrading to find that it is one less card to worry about. But Fentozzi advises against doing so because it will affect your effectiveness. Credit utilization ratio.
This is the percentage of available credit you are using. Canceling the card reduces your available credit, which increases your credit utilization ratio and may lower your credit score.
“Credit usage is 30% of your credit score,” says Fantozzy. “If you downgrade, you do not affect credit usage and you hold the history status of the same account.”
Cancellation of credit cards, on the other hand, affects all those financial factors. The effect of this depends on how many credit cards and how many available credits you have.
If you have a lot, then canceling a credit card may not have much effect on your usage ratio or credit score.
“I personally cancel two airline cards from COVID-19, so that annual fees are not paid, which were not really worth it,” Miller says. “I have a lot of cards, so it wasn’t worth holding on to them, and it didn’t make enough difference in my credit score.”
But if you have just a handful of credit cards, canceling someone can have a big impact.
If you are concerned about the effects of canceling your card or qualifying for a downgrade, you can ask the card issuer to reduce the annual fee.
Newland says, “The company has no obligation to say yes, but if you have a history with them and you’re struggling, they want to keep you as a customer and give you a waiver or a fee waive. Can be ready to do. For a year. ”
How can you downgrade a credit card?
Arrive first customer service Asking about downgrade options, restrictions and penalties by phone or online. Answers will help you determine whether to proceed or not.
If you have an MX Platinum Card, but want to downgrade to a Gold Card or Green Card, you must hold the card for at least 30 days. According to customer service, the downgrade process takes no more than two minutes.
Just call AmEx, and you will read a disclaimer about the rewards and fees, and then you will receive your new downgrade card within a few days.
If you have a Chase Sapphire Preferred Card and wish to downgrade, you will not be eligible until you hold the card for at least one year. Chase says that this is because you have paid the annual fee for the card when you receive it.
Miller says look at your cards to make sure they fit your needs.
“In general, it’s a good idea for customers to shop around their cards as much as they do,” he says. “It may make sense to pay a small or no annual fee and receive fewer air miles or less cash back rewards.”