If racking up rewards on travel credit cards was a normal part of your spending routine, you may want to reconsider your strategy during the coronavirus pandemic.
Travel rewards credit cards, such as airline and hotel-branded cards, have lost much of their usefulness in the era of stay-at-home orders. And with many of the cards charging an annual fee, you may be paying for perks you’re not getting right now.
Money expert Clark Howard, who’s an avid traveler himself, says we’ve seen enough COVID-related changes to the market that it’s worth reconsidering whether to carry a travel credit card at all.
But how do you decide if it’s worth waiting out the virus to enjoy the travel card-related perks again?
It’s less about the card itself and more about your future travel philosophy in the wake of this life-changing disease.
“This is something I think is more about a question of who you think you’ll be when we get over our coronavirus fears versus what you were when you originally got the card,” Clark says. “If you think that you can’t wait to get back to being that traveler out there, then ride with the card another year. But if you think your life will never be that way again, dump the travel card.”
4 Action Items for Determining the Fate of Your Travel Credit Card
- Deciding Whether You Actually Need to Keep Your Travel Credit Card
- Understanding How Travel Card Issuers Are Incentivizing Cardholders to Stay
- Identifying a Potential Replacement Credit Card
- Considering the Consequences of Cancelling a Credit Card Right Now
Through these four steps, Team Clark will help you navigate making the decision to keep or cut bait on your travel credit card.
Should You Keep Your Travel Credit Card Through the COVID-19 Pandemic?
No one wants to let go of the idea of getting free flights and hotel nights. For some of us, it’s part of the planning process for our next vacation. But we have to consider the reality that earning that type of reward through a credit card usually comes through paying for travel — for work or otherwise.
Now that we’re spending less on travel — but are still paying the annual fees on our travel cards — it can be hard to justify the expense. Let’s talk about a few things that could help you make the right decision.
Assess Your Travel Forecast for the Coming Months and Years
Clark says the most important thing to consider is what your travel habits will be once the coronavirus is behind us. Will you be back on the road logging hotel nights for work? Will you feel safe getting on an airplane and booking a vacation at a far-away destination?
If the answer to either of those is “yes,” you may want to hold onto your airline or hotel rewards credit card for the time being.
If you don’t foresee traveling for the next year or two, then you may already have your answer: It’s time to start thinking about a different type of credit card. (We’ll help you pick one later in this article.)
Request A Reprieve from Annual Fees
If you want to keep your travel card, Clark says you should contact your card issuer and ask for a waiver on your next annual fee. You may have to play hardball to get the company to agree to this, but remember Clark’s advice when dealing with customer service reps: “Polite persistence pays.”
You can usually find the customer service phone number on the back of the card. Or you could try visiting your card issuer’s website for live chat with a representative. Clark recommends this route because you can document any promises made in the conversation.
Downgrade Instead of Cancel?
Some credit cards may offer the option to downgrade from a premium version of their travel card to a more basic card. That may cost you some benefits and perks, but it could erase any annual fees you’re paying.
Team Clark recently published a guide to help accomplish a downgrade during the pandemic.
How Travel Card Issuers Are Incentivizing Cardholders to Stay
You can rest assured credit card issuers are aware that people are considering dumping their travel cards right now. This is especially true for travel cards with annual fees that can reach as much as $600. So the companies are responding by aggressively promoting things like statement credits, extra loyalty points and bonus incentives for spending in non-travel categories.
For example, American Express recently offered some of its travel cardholders the opportunity to earn up to $320 in statement credit for using their cards to pay for things like streaming TV and wireless telephone bills.
Clark says those offers are nice, but in most cases they’re just placeholders for the rewards you’re already paying for — but not getting — because of the pandemic. If you are able to take advantage of these promotional credits, they should become a part of the equation when you’re deciding whether to keep or cancel a card.
“I think you’ve got to run the numbers. If you’re carrying one of the top-level cards that have multi-hundred dollar annual fees, you could be paying up to $400-$600 per year. So the substitute benefit would have to be large enough to make it worth continuing paying that annual fee,” Clark says.
Potential Replacements for Your Travel Credit Cards
If you’re ready to move on from your travel credit cards but don’t know what to sign up for next, Team Clark suggests that you consider a cash back card as a potential replacement, since you can typically earn cash-based rewards for spending on a much broader range of purchases.
“If you pay your credit card bill in full each month and don’t know when you’ll get back to traveling, I recommend that you switch over to a cash back card and just turn your back on the airline card,” Clark says.
One of Clark’s favorite cash back credit cards is the Citi Double Cash, which lets you earn up to 2% in unlimited cash back on every purchase you make (1% when you buy, 1% when you pay your bill). It even has an introductory 18-month 0% APR period for balance transfers, so you might be able to transfer an existing balance from your travel credit card and save some money on interest in the process.
Team Clark has a comprehensive roundup of the top cash back credit card options here.
If you don’t pay your credit card bill in full each month, you may want to stay away from cash back rewards cards due to potentially high interest rates.
Instead, you could consider a credit card with an introductory 0% APR period on new purchases for short-term balance relief. Or you could ask about a low fixed-rate card from your local credit union for longer-term balance needs.
Things to Consider Before You Cancel Your Travel Credit Cards
If you’re leaning toward breaking up with your travel credit card, there are a few things to consider before you make it official.
Make Sure You Qualify for a New Card First
As the saying goes, “Look before you leap.”
Clark is a proponent of adding new credit cards to your wallet as a part of his strategy for enduring the financial impacts of the pandemic. So, within that credit-hoarding lens, cutting access to your travel credit card makes sense only if you first acquire another card to replace it.
“That’s why I talk about it as hopscotching. If you decide to dump a card, make sure you don’t dump it before you’re qualified for a replacement card first. Because you don’t want to dump that available credit line, and then you go apply for a card like the Citi Double, Cash and then Citi says, ‘Not on your life: We’re not giving you that card.’ Then you’ve really painted yourself into a corner,” Clark says.
Credit Limit Implications
Building on Clark’s suggestion to hoard access to credit during the pandemic, cutting your travel card could cost you in the way of total available credit. For example, you could end up with a net loss in available credit if you drop a travel rewards card with a $10,000 limit for a new cash back card with a $5,000 limit.
Credit Score Implications
If you cancel a travel credit card with a longstanding history of good payment, you could get dinged on your credit score in a couple of areas.
First, it may cost you in your credit utilization, which is a key piece of the credit score matrix. For example, if you trim your total available credit from $20,000 to $10,000 by eliminating a credit card, a $3,000 balance is going to reflect as 30% utilization instead of 15%.
Next, if the travel card has been in your wallet for a long time, you could negatively impact your length of credit history, which accounts for 15% of the FICO score.
Finally, you also should be aware of potential impacts on your credit mix (10% of your FICO score) and new credit (also 10%) when you apply for a new card.
Getting rid of a travel credit card through the COVID-19 pandemic could be a way to cut some temporary costs. And shifting to a credit card more suited for the spending realities in 2020 could earn you more useful rewards.
But it’s important to assess your personal spending situation before making a decision. For some people, keeping the travel card is going to be the right solution.
Clark sums up this decision-making process with this final thought:
“If you see yourself going back to traveling in heavy rotation in a year or two or whenever coronavirus is over, then when your year comes up on your annual fee, try to negotiate no fee or a lower fee for the next year. If you don’t see yourself going back to traveling like you did before — cancel the card.”