Closing a Credit Card? Here’s What You Should Do Instead

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Volumes have been written about how it’s almost never a good idea to close a credit card because it lowers both your credit age and your all-important credit utilization ratio. But what’s less known is when it’s OK to keep an old card that has always served you well, even if you don’t use it, if a better card has hit the market, if you don’t want to pay the annual fee anymore, or if the rewards structure has changed. Here’s when it’s OK to hang onto a card that you love, but no longer use.

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When You’re Frustrated With Spending Caps on an Otherwise Great Card

Sometimes, a fantastic card with great rewards comes with both frustrating spending caps and an annual fee. You might be tempted to cancel the card altogether just to ditch the yearly charge and the headache — but by adding a different card with a different rewards structure, you might be able to get the best of both worlds.

For example, say you had the American Express Blue Cash Preferred card because of its superb 6% cash back on groceries from U.S. supermarkets. Now, however, you might have buyer’s remorse because that 6% is capped at a $6,000 maximum annual spend that your family has outgrown — after that, the rate craters all the way down to 1% — and it costs $95 a year to use.

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Before you throw the baby out with the bathwater on such a great card, consider filling the gaps with a card that has rotating quarterly categories to take 25% of the pressure off of your Amex. For example, Chase Freedom Flex delivers 5% cash back on grocery stores from July-September. If you lay off your Amex for those three months and put all your supermarket purchases on the new Freedom Flex for that quarter, you’ll never fall below 5% cash back. For the rest of the year, you’ll be able to squeeze every dollar out of your Amex’s high rewards because you’ll only have nine months to meet its spending cap.

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When a Slightly Better Version of Your Card Hits the Market

Since its debut in 2014, the Citi Double Cash card was the king of the flat-rate hill. No other card could deliver 2% unlimited cash back on every purchase with no annual fee. Plus, its rewards structure — 1% when you buy, 1% when you pay — was brand new and made the card stand out as unique.

In June, Wells Fargo debuted the nearly identical . It checked all the boxes that made Double Cash great, but Wells Fargo separated itself by capitalizing on the reigning champion’s nearly total lack of other benefits. 

Active Cash does everything Double Cash does, but it also delivers impressive secondary rewards that are impossible to ignore, even for the most hardcore Double Cash die-hards. That includes complimentary 24/7 concierge service — a truly premium feature — along with a suite of luxury hotel benefits.

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If you find yourself ogling a new kid in town while one of your most tried-and-true everyday cards begins to look like a flip phone, don’t cancel your old faithful — just demote it. In this case, you could leave Double Cash open in case of emergencies — although most experts don’t recommend relying on credit cards as your primary emergency fund — or use it to fall back on its 2% flat rate when a card with a spending cap drops down to 1% in a specific category. 

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When Your Travel Card Sits Idle But Its Annual Fee Does Not

If you signed up for a travel card with an annual fee because you were planning a trip that COVID canceled, you might be considering ditching that card now that you’re still grounded with no vacation in the works.

Before you call it quits, you should know that major card issuers like Discover, Apple, Chase, Citi, and American Express are all deferring payments, raising credit limits, and waiving fees to keep their customers, according to CNBC — but not for every card. 

While Chase is extending mercy to some Sapphire Preferred cardholders, the bank announced in August that it was finally raising the annual fee on its Sapphire Reserve card from $450 to $550. It had planned the increase for 2020, but COVID forced a pause. If you’re paying a hefty annual fee for a travel card you opened only for a vacation you’re no longer taking, it might be one of the rare times that it makes sense to cancel a card — even a card you love — but only if the bank won’t budge.

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