Should I cancel my old credit card or keep paying the fee?

There are pros and cons involving the closure of a credit card. If you’ve found you’re hanging onto one or two too many cards, it makes sense to start thinking about cutting the one that’s least useful to you out of the equation and dealing with the hit to the chin that’s better to take earlier on than drag out and let monthly or annual fees drag out and drain one’s bank account.

Indeed, it’s tough to steer clear of a hit to one’s credit card upon its cancellation. But if your credit score is padded enough (let’s say its in the 700s or 800s) to take a hit, I’d argue that it doesn’t make a whole lot of sense to keep paying annual fees that can cost well north of $100, with some of the more premier cards costing several hundreds annually. In any case, for those who’ve been churning cards or have just signed up for too many due to those attractive temporary promotions, it makes sense to return to the drawing board to crunch the numbers.

If a credit card costs doesn’t generate a magnitude of benefits (not just the cash-back or points returns, but in terms of the perks and insurance coverage offered as well) that make the annual fee worth the while, it’s probably best to brace for a hit to one’s credit score and hit that cancellation button. Indeed, many credit cards lost their luster after the promotional period expired. Whether it’s the temporary low interest rate that drew you in initially or an offer to receive a considerable amount of points right off the bat, one shouldn’t be afraid to cancel a card if that pesky annual fee is no longer worth the price of admission.

What about the hit to one’s credit score?

Of course, the negative impact on one’s credit score should be considered. Cancelling a card could knock off a good chunk of points right off the top. But as one Reddit commenter put it in response to a Reddit poster asking if they should keep a particular paid card, it’s not a good idea to pay for a good credit score. I couldn’t agree more, especially if one’s credit score is already well past a level that’d provide any additional benefits.

Indeed, there’s not a huge difference between a perfect credit score and an excellent one, or even an excellent one and one that’s in good standing. And if you have no plans to borrow significant sums of money any time in the near future, I’d argue that it’s best to take the credit hit and shore up for cash as soon as possible.

For those who’ve crunched the numbers and have sat down with a financial advisor, perhaps it’s time to pick up the phone and call the credit card company, requesting a waived fee or additional benefits. Indeed, if you call with the intent to cancel a card, you may very well have some offers thrown your way and the axe of any coming fees. In such a scenario, sticking around a while longer may make sense. Just be sure to have a list of requests when negotiating with the credit card company.

Credit scores matter, but cash matters more.

At the end of the day, credit scores matter but not as much as cash that’s in your bank account. As such, don’t fear a hit to your credit score if you’re itching to cut up a card. At the end of the day, you can repair any such damage dealt to your credit by paying on time and keeping your utilization well below the 30% mark. With such healthy credit card habits, you’ll probably shrug off any credit hit from a prior card cancellation.

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