How to Decide Whether to Keep or Close a Credit Card

How to Travel for Free: Part 7 of 7

To fuel free travel in the manner I’ve described in this series of posts, you need to open credit cards with big signup bonuses on an ongoing basis. The question then arises: should you ever close a credit card you open and, if so, when?

Overwater bungalows, Bora Bora

My basic rule is this: You should close a credit card if its annual benefits do not outweigh its annual fee. Otherwise, you should leave it open.

Let me unpack that rule a bit.

  1. First, if a card does not have an annual fee, it generally makes sense to keep it open. Such cards help your credit score by lowering your credit utilization ratio and by building your average age of accounts. In particular, I suggest keeping your oldest card open if it does not have an annual fee.
  2. If a card does have an annual fee, you should take a hard look at whether the ongoing benefits justify paying the fee. It is easy to deceive oneself. A benefit like lounge access can be amazing, but oftentimes it is just okay. There’s nothing wrong with chex mix and Bud Light. You just don’t want to find yourself paying $95/year for it. If a card’s benefits do not outweigh its annual fee, you should close it before the second year’s annual fee hits.
  3. If a card has an annual fee, but that annual fee is sufficiently offset by annual benefits, then I recommend keeping it open. The Chase IHG card is a great example. For an annual fee of $49/year, you get a free night each cardmember year at any IHG hotel in the world. That includes properties like IHG’s two InterContinental hotels in Bora Bora that can go for over $900/night. Even a card like the Southwest Premier I would tend to keep open. It gives 6,000 points per year, which mostly offsets the $99 annual fee since I value 6,000 points at $90 (1.5 cents per point). I don’t mind paying $9/year to benefit my credit score.

One last note. In the case of cards you are going to cancel after receiving the signup bonus but before the second year annual fee posts, I recommend waiting until the 10th or 11th month of cardmembership to do so. Cancelling a card right after receiving the bonus tarnishes your relationship with the issuing bank. Keeping the card open for 6+ months after receiving the bonus builds your relationship with the bank while at the same time benefiting your credit score by aging your accounts a bit.

Conclusion to “How to Travel for Free” Series

Free travel is amazing, and it’s almost unbelievable that it is possible.

For those who otherwise couldn’t afford to travel, I hope this series of posts has given you a way to do so. For those who would travel anyway, I hope these posts enable you to divert the money you would spend on travel to other priorities.

Whether travel itself is extremely meaningful to you, or whether saving considerable money on travel gives you more to spend on other things that are even more meaningful, I hope this series of posts helps in your pursuit of what matters most.

This post is the final one in the following series:

  1. Imagining the Possibilities of Free Travel
  2. Leveraging Credit Card Sign-up Bonuses for Free Travel
  3. Understanding Credit Scores and the Effect that Credit Card Applications Have on One’s Credit Score
  4. Which Credit Cards to Get to Maximize Free Travel
  5. 5 Creative Ways to Meet the Minimum Spend Requirement in Order to Get the Sign-up Bonus
  6. How to Use the Miles and Points You Earn
  7. How to Decide Whether to Keep or Cancel Credit Cards (this post)

Question: What have you learned from this series of posts on “How to Travel for Free”? Do you have questions that I didn’t answer? You can leave a comment by clicking here. And if you liked this post, sign up here so that you never miss a future post.

Please note: I reserve the right to delete comments that are offensive or off-topic.

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2 thoughts on “How to Decide Whether to Keep or Close a Credit Card

  1. Brian, there’s more to lounge access than Chex Mix and a Bud Light. For those of us who travel very long distances, lounges make a huge difference in overall comfort. I’m often stuck with 4 or 5 hour layovers at international airports – not enough time to leave and go into the city, but long enough that I’d like to drop my gear and perhaps take a shower. While lounge food often isn’t a complete meal, the snacks are hefty enough to feel like one and can save you from having to buy a $10 burrito that didn’t even come with a drink.

    My point is that the value of lounge access is very dependent on the person or situation. A $95 annual fee is a steal for lounge access and I would happily pay that.

    • Oh, totally. Like I say, lounge access *can* be amazing. And totally worth it. In your case, it sounds like it is. I’ve been grateful for lounge access on long trips and have saved the price of full meals for my family in an AMEX Centurion Lounge. But some lounges are really basic, and some folks don’t travel a lot. When either, and especially both, of those factors are in play, the $95 can often be better spent elsewhere. In your circumstances, it sounds like the annual fee is sufficiently offset by annual benefits, which is great and a reason to keep the card open.