You Need An Exit Plan When Cancelling A Credit Card

by joeheg

There should always be a reason why you’re signing up for a credit card. It might be for a mega-sign up bonus or because you’ll be able to get long term benefits from the perks the card gives its cardholders. Other times you’ll get a card because you can earn a ton of points by taking advantage of bonus categories. Lastly, some credit cards let you earn status, extra points or free nights by spending a set amount during a year.

It’s necessary to review the benefits you get from your cards and compare them to the annual fees you’re paying. These calculations can change over time, either from a change in your spending habits, a change to the card benefits, or a new card that gives you better rewards or charges a lower annual fee. A combination of all three is why I told my dad to cancel his Gold American Express card.

This did bring up an interesting dilemma because he still has a decent amount of Membership Rewards in his account. The Gold AMEX is the only card he has that earns Membership Rewards. So before I have him call to cancel, we need to come up with an exit plan.

Why do you need an exit plan?

The first part of making a plan is to gather all of the pertinent information. Most importantly, what happens to your points in a program when you cancel the associated credit card. The rules are different for every card so this is the most important step of the entire process.

In this case, American Express keeps the Membership Rewards points from all of your cards in a single account. As long as you have at least one card that earns Membership Rewards, you’re able to cancel the other cards with no fear of losing your points.

If you close all of your Membership Rewards cards, what happens to the points in your Rewards Account depends on whether you keep any American Express accounts open after you cancel your Rewards Account.

Here are AMEX’s rules for when you cancel your account:

  • You can use the points in your Rewards Account for up to 30 days from the date of cancellation if you keep at least one Card Account open, it isn’t canceled or past due, and there is no return payment outstanding.
  • You will immediately lose all the points in your Rewards Account if you don’t keep any Card Accounts open.

So if you cancel all of your Membership Rewards cards but keep open a Delta AMEX card, for example, you’ll have 30 days to use the points. If the Membership Rewards earning card is your last AMEX card and you cancel it, you lose whatever points are in the account immediately.

What Options Do You Have?

Depending on the type of card you have, you might not have to do anything. If you have a Hilton AMEX card of a JetBlue Plus card from Barclays, you can cancel the co-brand card with no worries about losing existing points. That’s because points earned with co-brand cards are deposited directly into your loyalty account. The only thing you have to keep in mind is the point expiration policies of the specific hotel and airline programs.

If you have a card where you’re at risk of losing points when closing an account, you have several options:

  • Liquidation – One way to keep from losing your points is to transfer them all from your account. You could transfer points to one of the program’s partners where you’re confident you’ll be able to use them. Using your points to purchase gift cards is another option, but you’ll get a lower value for them. Finally, cards let you redeem points for statement credits, shopping for merchandise on their website or to make purchases on Amazon. These are the worst uses for your points, but it’s better than getting nothing for them if that’s your only option.
  • Transfer Points – Chase will let you transfer points to authorized users or family members, which can be useful if you’re closing a card but also to maximize the value of Ultimate Rewards. Citi also allows such transfers, BUT when you cancel the account the points came from the transferred points will expire.
  • Downgrade Your Card – All of the major banks have no-annual-fee options to keep your points alive. You can downgrade your card and keep your points alive. However, except for American Express, downgrading your account will also limit the value of your points. But at least you’re not losing them altogether.
  • Retention Offer – Getting a retention offer changes the cost/benefit analysis and a good one could be the difference between keeping and ditching a card.  I thought that 2020 would be a great year for retention offers because banks wouldn’t want to lose customers. Instead, it’s been a mixed bag with banks cutting back on offers for a while and just recently they’ve gotten more generous.

Final Thoughts

What path you choose to follow is up to you. I can’t stress enough that having all of the information at your disposal is the most important step of the process. Check and double-check the card policies about canceling a card before doing anything. The banks can change rules whenever they want so make sure the information you’re looking at isn’t out of date.

Once you have the details, you can make an informed decision about if you still want to cancel a card and if so, what’s going to be your plan to preserve your hard-earned points.

Cover Image by Gerd Altmann from Pixabay

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This post first appeared on Your Mileage May Vary


Jim F. November 11, 2020 - 4:46 pm

VERY important reason for having an exit plan to add to this post: canceling a card can have a negative impact on one’s credit score because it will have the impact of increasing one’s utilization rate if the credit can’t be transferred and, if one has had that card for a while, it can also decrease the average age of one’s accounts.

Jim F. November 11, 2020 - 5:07 pm

Very important reason(s) to add to the valuable observations in this post: if one can’t “move” the credit associated with the account being closed, it can have an unintended (and negative) impact on one’s credit score as a result of increasing one’s utilization rate and (if the card was held for a while) reducing the average age of one’s accounts.


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