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Breaking Up With Your Annual Fee: The Ultimate Guide to Credit Card Downgrades
December 12, 2024
In the ever-evolving landscape of personal finance, your once-perfect credit card might not serve your needs anymore. Perhaps that premium travel card with a hefty annual fee no longer makes sense as your travel habits change, or maybe you've found yourself using fewer of its perks than before. Before you reach for the scissors to cut up that card, consider a lesser-known alternative: downgrading your credit card.
What Does Downgrading a Credit Card Mean?
Downgrading a credit card means switching your current card to another card from the same issuer that typically has a lower (or no) annual fee and possibly fewer benefits. This process, also called a "product change," allows you to maintain your existing account history while transitioning to a card that better suits your current needs.
Why Consider Downgrading Instead of Canceling?
Preserve Your Credit Score
When you downgrade a card instead of canceling it, you can protect key factors that influence your credit score:
- Maintain your credit utilization ratio: Canceling a card reduces your overall available credit, which can increase your credit utilization ratio and potentially lower your score.
- Preserve your credit history: Your account age affects your credit score, and keeping older accounts open helps maintain a longer average credit history.
- Avoid hard inquiries: Unlike applying for a new card, downgrading typically doesn't require a hard credit check.
When Should You Downgrade Your Credit Card?
Consider downgrading your credit card in these scenarios:
- When the annual fee isn't worth it anymore: If you're not getting enough value from your card to justify its annual fee.
- When your spending habits have changed: If you no longer spend in the categories where your current card offers maximum rewards.
- When you have multiple premium cards: If you have several cards with overlapping benefits and want to reduce annual fee costs.
- When you want to keep your account history: If the card represents one of your oldest lines of credit.
Real-World Card Downgrade Examples
Chase Credit Card Downgrades
Chase Sapphire Reserve® to Chase Sapphire Preferred® Card
- Why consider it: Reduce your annual fee from $550 to $95 while still maintaining access to the Chase Ultimate Rewards program.
- What you'll give up: Lower travel credit ($300 vs. none), reduced point value for travel redemptions (1.5x vs. 1.25x), and loss of Priority Pass lounge access.
- When it makes sense: If you're traveling less frequently but still want to earn Ultimate Rewards points for eventual travel redemptions.
[[ SINGLE_CARD * {"id": "510", "isExpanded": "false", "bestForCategoryId": "15", "bestForText": "Top-Tier Benefits", "headerHint": "Top-Tier Benefits"} ]]
[[ SINGLE_CARD * {"id": "509", "isExpanded": "false", "bestForCategoryId": "15", "bestForText": "Exceptional Trvael Perks", "headerHint": "Exceptional Trvael Perks"} ]]
Chase Sapphire Preferred® to Chase Freedom Unlimited®
- Why consider it: Eliminate the $95 annual fee entirely while maintaining your existing account.
- What you'll give up: Reduced travel protections and no more 1.25x value when redeeming points through Chase Travel.
- When it makes sense: If you're not traveling much but want to continue earning rewards on everyday purchases with no annual fee.
[[ SINGLE_CARD * {"id": "497", "isExpanded": "false", "bestForCategoryId": "15", "bestForText": "Fantastic Cash Back Card", "headerHint": "Fantastic Cash Back Card"} ]]
Capital One Credit Card Downgrades
Capital One Venture X Rewards to Capital One Venture Rewards Credit Card
- Why consider it: Lower your annual fee from $395 to $95 while still earning travel rewards.
- What you'll give up: Airport lounge access, $300 annual travel credit, and higher earning rates on certain purchases.
- When it makes sense: When you still travel occasionally but don't use premium perks enough to justify the higher fee.
[[ SINGLE_CARD * {"id": "2888", "isExpanded": "false", "bestForCategoryId": "15", "bestForText": "Luxurious Travel Benefits", "headerHint": "Luxurious Travel Benefits"} ]]
[[ SINGLE_CARD * {"id": "438", "isExpanded": "false", "bestForCategoryId": "15", "bestForText": "High Travel Rewards", "headerHint": "High Travel Rewards"} ]]
Capital One Venture Rewards to Capital One VentureOne Rewards Credit Card
- Why consider it: Eliminate the $95 annual fee while staying in the Capital One miles ecosystem.
- What you'll give up: Lower rewards rate (1.25x miles vs. 2x miles on all purchases).
- When it makes sense: If you're spending less overall and the reduced rewards rate is offset by savings on the annual fee.
[[ SINGLE_CARD * {"id": "440", "isExpanded": "false", "bestForCategoryId": "15", "bestForText": "No Annual Fee", "headerHint": "No Annual Fee"} ]]
American Express Credit Card Downgrades
American Express Gold Card to American Express EveryDay® Credit Card
- Why consider it: Reduce your annual fee from $250 to $0.
- What you'll give up: Dining credits, higher rewards on dining and groceries, and airline fee credit.
- When it makes sense: If you're not spending enough in bonus categories to offset the annual fee.
[[ SINGLE_CARD * {"id": "118", "isExpanded": "false", "bestForCategoryId": "15", "bestForText": "Generous Travel Rewards", "headerHint": "Generous Travel Rewards"} ]]
[[ SINGLE_CARD * {"id": "260", "isExpanded": "false", "bestForCategoryId": "15", "bestForText": "Awesome Amex Perks", "headerHint": "Awesome Amex Perks"} ]]
How to Downgrade Your Credit Card: Step-by-Step Guide
- Check eligibility: Most issuers require that you've had your card for at least 12 months before allowing a downgrade.
- Redeem existing rewards: Before downgrading, use or transfer any points that might be affected by the change.
- Research available options: Identify which cards from your issuer are available for downgrade (typically within the same card "family").
- Call your issuer: Contact customer service using the number on the back of your card to request the product change.
- Confirm the details: Verify what happens to your account number, credit limit, and any existing rewards.
Potential Drawbacks to Consider
While downgrading offers many benefits, be aware of these potential downsides:
- Loss of sign-up bonus opportunity: By downgrading to a card instead of applying for it new, you'll miss out on any welcome bonus it offers.
- Possible rewards devaluation: Your existing points might be worth less or transfer to a different rewards program when you downgrade.
- Limited product options: You can only downgrade to certain cards within your issuer's portfolio, typically within the same card "family."
When Canceling Might Be Better Than Downgrading
In some cases, canceling your card might actually be the better choice:
- If you want to be eligible for a sign-up bonus on a new card from the same issuer
- If you're trying to reduce the number of cards you manage
- If there are no suitable downgrade options available from your card issuer
The Bottom Line
Downgrading your credit card can be a smart financial move when your current card no longer matches your spending habits or lifestyle. It allows you to avoid annual fees while preserving your credit history and avoiding the negative impacts of closing an account.
Before making any decisions, calculate the value you're getting from your current card, explore available downgrade options, and consider how the change will affect your overall credit card strategy. With the right approach, downgrading can help you maintain a healthy credit profile while ensuring your credit cards work for—not against—your financial goals.
Remember: your credit cards should adapt to your life, not the other way around.
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Editorial Disclosure: Opinions expressed here are those of Kudos alone, not those of any bank, credit card issuer, hotel, airline, or other entity. This content has not been reviewed, approved or otherwise endorsed by any of the entities included within the post.
