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The coronavirus pandemic has drastically changed the calculus for deciding which credit cards you should have. The cost-benefit analysis that once made a $100 or even $550 annual fee well worthwhile no longer applies. If you’ve lost your job or suffered a major slowdown in your business, annual fees can really hurt.
Even if you've been able to keep working from home, your rewards credit cards may be less valuable to you. After all, lots of cards are designed to reward spending on travel, dining and gasoline. Chances are you’re not buying many plane tickets and hotel stays these days, and you may be dining out less and spending less at the pump. Point being: Drastically changed spending habits mean those credit cards aren’t serving you the way they were a few months ago.
Here’s how to decide which credit cards to cancel.
Look at the annual fees
If you’re putting your rewards credit cards to the survival test, sort them into two groups: cards that charge annual fees and cards that don’t. For those facing financial uncertainty, no-annual-fee cards are probably worth keeping. It’s the others that need careful scrutiny.
Look at the amount of each fee and when it comes due. Check past statements to see when you were last charged. If you have a card that won’t be hit with the next annual fee for nine or 10 months and you expect your card usage to return to normal well before then, this may not be the card to cancel. If the fee will come due in one or two months, this could be a card that needs to go.
Remember, you can always ask the card issuer to waive the annual fee this year. With banks experiencing increased call volumes right now, that could be an uphill battle. But if you can get someone on the phone, it can’t hurt to ask.
» Learn more: How card issuers are responding to COVID-19
More important than the "when" for your annual fees is the "how much." If you (like many travel rewards enthusiasts) have multiple cards, add up all the annual fees to get a clear-eyed view of how much you’ll have to spend in the coming year to earn travel rewards.
As an example, consider how holding onto a lineup of cards can add up quick. If you hold the Chase Sapphire Reserve® plus the Citi® / AAdvantage® Platinum Select® World Elite Mastercard® plus the Southwest Rapid Rewards® Plus Credit Card plus the American Express® Green Card, you’re looking at close to $900 a year in fees. Will you really get that much value out of these cards? If not, it’s time to cut your deck down to a more manageable hand.
Consider your COVID-19 spending patterns
It’s time to get a bird’s-eye view of your new spending habits so you can evaluate your credit cards’ individual strengths.
Chances are, you’re not going to restaurants much these days. But are you ordering a lot of takeout? Or perhaps you’re cooking at home more, meaning you’re spending more at the grocery store?
» Learn more: Best credit cards for ordering food right now
And how about gas? Are you still commuting or is your gas bill next to nothing?
Has your shelter-at-home lifestyle shifted a big portion of your regular spending to Amazon or Whole Foods delivery? Don’t forget streaming services like Netflix, Hulu and Spotify.
Look at bonus points and cash back categories
Every spending category mentioned above is rewarded by certain credit cards. For example, if you have a Wells Fargo Propel American Express® card, you’re getting triple points on Netflix, Hulu and multiple music-streaming services
If you have a Hawaiian Airlines® World Elite Mastercard® or the American Express® Gold Card, you’re getting bonus points for making charges at grocery stores. Shopping Amazon? Then, you might want to hold on to your Amazon Prime Rewards Visa Signature Card, which rewards you with cash back for your Amazon and Whole Foods delivery purchases.
On the other hand, most travel rewards credit cards reward travel, which you’re likely not doing much of these days. That means the 6 Bonvoy points per dollar you earn staying at Marriott hotels with your Marriott Bonvoy Boundless™ Credit Card probably aren’t very rewarding these days.
For all your cards, refresh your memory about the benefits you get. Spending categories that didn’t hold much interest for you when you signed up for the card may be goldmines now. Have all these perks top of mind when you consider which cards to cancel.
» Learn more: NerdWallet’s best credit cards for groceries
Scrutinize travel perks
Travel statement credits, free hotel nights and airport lounge access are extremely appealing perks during normal times. But it may be time to ask whether they’re worth incoming annual fees.
For example, the Chase Sapphire Reserve® makes its $550 yearly fee more palatable with a $300 travel statement credit. Every year you charge $300 in qualifying travel expenses, that amount comes straight off your bill, easing the pain of that annual fee. But when you’re holed up at home and avoiding airplanes, what are the odds you’ll be able to take advantage of that credit?
Similarly, the United℠ Explorer Card, with an annual fee of $0 intro for the first year, then $95, boasts among its perks two free United Club passes every year. Will you get a chance to use them? If not, that could be the deal breaker for your United card.
Consider your credit score
With possible financial uncertainty ahead, a good credit score is more valuable than ever.
Remember this as you cull your credit card collection: Long-term relationships with lenders boost your credit score. That means canceling a card you’ve had for years will leave a bigger temporary hit on your score.
Similarly, a major factor determining your credit score is how much credit has been extended to you that you haven’t used. So canceling a card with a high credit limit could hurt your score more than canceling a card with a low limit.
» Learn more: Does closing a credit card hurt your credit score?
The bottom line
No one can decide for you which, if any, cards should be canceled. The variables include not just the annual fees and recent changes to your income and spending, but your own best guess about what your spending and travel habits will be like in three, six or 12 months.
The important thing is to get a firm grasp on how your credit cards are performing for you, then use your best judgment about the ones that need to go.
The information related to Wells Fargo Propel American Express® card and Amazon Prime Rewards Visa Signature Card has been collected by NerdWallet and has not been reviewed or provided by the issuer of this card.
All information about the American Express® Green Card has been collected independently by NerdWallet. The American Express® Green Card is no longer available through NerdWallet. The Wells Fargo Propel American Express® card is no longer accepting new applications.
How to Maximize Your Rewards
You want a travel credit card that prioritizes what’s important to you. Here are our picks for the best travel credit cards of 2021, including those best for:
Flexibility, point transfers and a large bonus: Chase Sapphire Preferred® Card
No annual fee: Bank of America® Travel Rewards credit card
Flat-rate travel rewards: Capital One Venture Rewards Credit Card
Bonus travel rewards and high-end perks: Chase Sapphire Reserve®
Luxury perks: The Platinum Card® from American Express
Business travelers: Ink Business Preferred® Credit Card