Many Americans carry several credit cards, but a full wallet isn’t a problem unless you’re paying annual fees for perks you never use. Recent research from Motley Fool Money, based on 2025 Federal Reserve data, shows that nearly one‑in‑five cardholders pay an annual fee on their primary card. If the fee isn’t offset by cash back or rewards, it’s time to reconsider that account.
Start With Your Balance
Before you think about closing any card, make sure any balance is paid down. Closing a card does not erase the debt, and the interest you pay will outweigh any reward you might lose.
Evaluate Annual Fees
Ask yourself whether the card’s annual fee is justified. A $95 fee, for example, only makes sense if the card’s rewards, travel credits or other benefits exceed that cost. If the perks fall short, call the issuer and ask about a no‑fee version. Most major rewards cards have downgrade options that keep the account open and preserve your credit history with just a simple phone call.
When No Downgrade Is Available
If the issuer cannot offer a fee‑free alternative and the benefits don’t cover the cost, cancel the card. The newer the card, the less impact on your credit score, because credit scoring models favor long‑standing relationships.
Cash Out Rewards First
Before you close an account, redeem any points, miles or cash back. Those rewards typically disappear the moment the card is canceled. The Consumer Financial Protection Bureau reported that billions of dollars in credit‑card rewards go unused each year, so be sure to claim what you’re owed.
Match Cards to Your Current Spending
What worked five years ago may no longer fit your lifestyle. A card that rewards restaurant meals may be less useful if your spending has shifted to groceries and family expenses. Compare cash‑back rates: spending $20,000 a year on a 1% cash‑back card yields $200, while a flat‑rate 2% card would return $400 on the same purchases.
How Closing a Card Affects Your Score
Two main factors can lower your credit score when you close a card:
- Credit utilization: Closing an account reduces your total available credit, raising the percentage of credit you’re using. Lenders prefer a low utilization ratio.
- Credit history length: A closed account in good standing can stay on your report for up to ten years, but once it drops off, your average account age may decline, which can also affect your score.
To mitigate these effects, keep your oldest accounts open and retain any high‑limit cards you don’t use frequently.
How Many Cards Should You Have?
There’s no perfect number, but most people manage well with two or three well‑chosen cards. A simple lineup can cover everyday purchases, gas, and larger travel expenses without overwhelming your wallet.
Practical Steps to Clean Up Your Wallet
- Identify cards with annual fees that don’t provide sufficient rewards.
- Call the issuer to see if a no‑fee version is available.
- If not, cancel the newer card first to limit impact on your credit history.
- Redeem any remaining rewards before the account closes.
- Maintain your oldest, high‑limit cards to preserve credit utilization and history.
By following this strategy, you can stop paying unnecessary fees, keep your credit score healthy, and ensure the cards you keep truly work for your family’s financial goals.
Original reporting: KTVZ (Central Oregon) — read the source article.
