Avoiding Annual Fees - App-O-Rama Part 4

Related Posts

Part 1 - App-O-Rama Intro

Part 2 - Picking The Right Cards

Part 3 - Credit Card Application Status

Part 5 - Affect on your credit score

Avoiding Annual Fees

App-O-Ramas create quite a dilemma.  The best sign up bonuses, in general, are for cards that have annual fees, which can really negate any savings you get if you pay them.  I have almost no credit cards with annual fees that I think are worth keeping the card despite the annual fee.

So, how can one get the bonus without paying the annual fee?  If there is an annual fee the first year of the card there is no way to avoid it.  Fortunately, most cards waive the annual fee the first year to entice you so our discussion will be limited to the annual fee of year 2.

Option 1 - Cancel Your Credit Card

The simplest, and least desirable, way of avoiding the annual fee is simply to cancel the card before the annual fee kicks in.

Drawback 

1. Canceling credit cards negatively affects your credit score because the average age of your credit cards is shorter if the card has been a long standing card and because your credit utilization will go up.  I hope to explain this in part 5 of the series.
2. You are also lowering your available credit if you every need it and you are losing leverage for the future, as I will explain in the second option.

Benefit

1. You can sign up again for the same card to get the bonus a second time.  Each credit card company has different rules regarding how long you have to wait between cards to get the new bonus so be aware of the fine print.

Option 3 - Consolidating Credit lines

I haven't tried it with other companies yet, but with Chase you can consolidate 2 credit lines into one.

For example, let's say you have a Chase Freedom with a $1,000 credit limit and a Chase United card with a $1,000 limit.  You can ask Chase, via secure message or telephone, to consolidate the credit line of your United card onto your Freedom card.  You will end up with a Chase Freedom that has a $2,000 credit limit and no United card.

Drawback

1. You get no extra miles or points as compared to option four.  
2. You also lose any benefits of that particular card because it's closed.
3. The more credit you have with one company the more risk the companies takes on.  If you have way more than you will every use (a different number for each person) consider asking the company to lower your credit limit after consolidation.

Benefits

• Using credit lines in the future as leverage
• If you have a Chase Freedom with a $10,000 limit and you apply for the Chase Sapphire Preferred and are rejected, you can usually call and ask to allocate credit from an existing credit line to get the new credit card approved.  In this example, you can ask for $5,000 to be transferred to Sapphire Preferred and you now have two credit cards with credit limits of $5,000.
• Your credit score is not affected
• You aren't really closing your credit history of this card, just transferring to a new card. Also, your utilization ratio stays the same. 

Option 3 - Downgrade to a card without an Annual fee

Some credit card companies will allow you to downgrade you current card to a different card that doesn't have an annual fee.  One example is downgrading a Chase Sapphire Preferred into a Chase Freedom.

Drawback

1. You also lose any benefits of that particular card because it is closed out.
2. If you don't already have the card with the annual fee, you may be losing an opportunity to get the sign up bonus for that card.

Benefits

• Using credit lines in the future as leverage
• Same as before
• Your credit score is not affected
• Same as before

Option 4 - Retention Bonus

This is my preferred option for a number of reasons.  You can call up the credit card company and say something like this, "I really like you card and your miles, but I am thinking about closing it becauseI don't want an annual fee and I don't feel like I'm earning enough miles."

Usually, but not always, they will then offer to waive the annual fee for a year or give you extra miles to stay on or offer a spending target (ie - 10,000 miles for spending $1,000 this month) to earn extra miles.

If they don't offer anything, you can ask for it.  "Can you please offer me a spending target to get extra miles?"

If they offer something, always ask if they can offer more.  They won't rescind the previous offer and you may be able to get a better offer.

Check out this post from The Points Traveler who is a former representative for Citibank, I found it very helpful in my own retention bonus calls. He suggests asking, "What are the most number of miles you can offer me to keep my business?"   They will have to tell you the highest offer.

Drawbacks

• You may have to call a few times to get the offer you want.

Advantages

• You keep all the advantages of your card because it is still open and often without an annual fee
• You get extra miles for free
• You can do it every year, theoretically.
• You can still do all the other options the next time if this doesn't work out.

Here is an example of one of my successful retention bonus calls.

United Airlines - 3 Hours Is Not Worth It

United Airlines - A Lesson in Awful Customer Service 

My good friend's wife gave birth this past Thursday and his son's bris is this Thursday.  I decided that I would try to come in to New York to make it.

A few months back, I signed up for the Chase United MileagePlus Explorer Credit Card.  I got 30,000 miles for my first use of the card and adding an authorized user within 2 months.  There is an annual fee to the card, but it is waved for the first year and I figured I would use the miles and then cancel the card.  The flights were $400 roundtrip and I still had 26,000 miles left so I decided to try to use the miles.

I found flights that "cost" 25,000 miles and $80.  I booked them and only realized later that I must have clicked the wrong button because my email conformation says that my tickets cost over $600.  It was the same day so I called up and figured I could change it pretty easily.

This is where the fun begins:

I called up and was told that there would be a 3 minute wait time.  No big deal.  I put my cell phone on speaker phone and went on with my day.  After about 35 minutes, I was starting to get annoyed.  I don't care much if I am told that it will be 20 minutes and I have to wait 25, but if I'm told it's only going to be 3 minutes, I expect a very short waiting time.  After 57 minutes, someone got on the line to answer my call.

I was annoyed, but I told her that I wasn't angry at her, I was angry at United Airlines.  I was hoping that by waiting so long and saying I was annoyed I might get something for free.  She pretty much ignored my complaint.

After about 30 minutes of getting my conformation numbers, cc numbers, billing address etc, she put me on hold so that she can cancel my current flight and get me the same flight but for miles instead of money.

Another 15 minutes passed and someone new came on the line and asked "How can I help you?"  At this point, I was angry.  I had spent the last hour and 45 minutes changing my ticket and I was about to start over.  They said they don't know who my last agent was so they couldn't transfer me back so I had to start over.

They put me on hold for another 30 minutes (I had to now recharge my phone after I had already charged it the previous night) while they were once again canceling and rebooking my flights.  After 3 hours total (thankfully it was the weekend so unlimited minutes on the cell :), I was done.  The ticket was successfully changed, but I wanted to speak with their manager.  There was no way I was going to leave empty handed from this fiasco without a fight.

The manager apologized profusely for how horrible United's customer service is.  He told me that everything is recorded and he would  listen to the tapes and make sure this will not happen again.  I told him that it was unacceptable.  My time is valuable and I cannot imagine using United Airlines again if it will take me 3 hours for a simple change to my ticket.  His response was that he could give me a credit to my card or miles as an apology.  I said that I certainly don't want miles after what happened, but I would take a credit.  Phew, at least I didn't completely waste my time.

While I certainly would not have signed up for a credit and have to go through the aggravation and time I wasted, but it's better than no credit at all.

The important lesson is that large companies are often willing to give you something for free if they mess you over and all you have to do is ask.  You hope they don't mess you over, but unless you ask.

The next time a big company wastes your time or your money, tell them you and your time are important and that you deserve something for the way you are being treated.  You would be surprised what you might get in return.

Get 3-6% Cash Back on Groceries and 2-3% Cash Back on Gas! - American Express Blue Cash and Blue Cash Preferred

American Express Blue Cash

Advantages:

1) 3% cash back on Groceries and 2% cash back on Gas and Department stores

2) No limits on how much you can get back

3) No annual fee

Disadvantages:

1) Superstores and Warehouse clubs do not count so Walmart Superstores, Costco and BJ's will likely not count for this deal.

2) It is an American Express so it is not as accepted but chain stores almost always accept American Express.

3) Another credit card to carry.  It is up to you to make a cost benefit analysis of whether it is worth the money to carry around a few cards.


Keep in mind that if you have the Fidelity American Express you are already getting 2% back on everything so only need to use this card for groceries.

American Express Blue Cash Preferred

This is a big improvement from the old American Express Blue.  You used to have to spend $6,500 before you got any big rewards, not anymore!

Advantages:

1) 6% cash back on Groceries and 3% cash back on Gas and department stores.

2) No limits on how much money you can get back

Disadvantages:

1) There is a $75 annual fee.  However, if you spend $500 in the first 60 days you get $100 so the first year the annual fee can be a non issue.

2) Superstores and Warehouse clubs do not count so Walmart Superstores, Costco and BJ's will likely not count for this deal.


3) It is an American Express so it is not as accepted but chain stores almost always accept American Express.

4) Another credit card to carry.  It is up to you to make a cost benefit analysis of whether it is worth the money to carry around a few cards.

Which one should I get?

If you spend more than $50 a week on groceries, which is most people, you should go for the annual fee card.  I am not normally a fan of annual fee cards but when they offer rewards like this card you can make back the fee very quickly.