Originally Posted by
jan_believes
My DS recently obtained a Citi AA Premier MC when offered 30K miles plus a $100 credit to apply for an AA ticket to go on his first vacation week in June (he's 24 and this was the first year in his job).
He spent enough ($2K) to obtain his bonus. He has overspent for a year or so on other cards with zero percent APRs and those are about to hit regular APR levels.
I think he should just close this latest card (the AA MC) and concentrate on paying off his debt for awhile, including this one in full.
His credit limits total a nice sum and his use ratio is actually not bad either. His credit history is over 6 years, good for his age.
What is the downside of just pulling the plug on this AA MC early? I just don't think he can keep a commitment to sock drawer it. The temptation will be too much and cancelling it makes sense to me. I think he would listen if I told him to close it. But, I am open to advice.
No lectures on interfering with his decisions, please. TIA.
Unless you can do it at 0% or very low percentages (which tend to only be available on cards on a promotional basis), having debt to pay off mathematically counteracts the value of the miles / points earned from cards to the point of the net returns going negative in most cases. You have to do the math on the specifics, but, yes, in general it's better net value to focus on paying off debt first and only then (and only if you can do it without getting into debt again) focus on credit cards for points and miles.
In terms of miles, the main downside of pulling the plug on this AA MC is that it restarts your 24-month clock until you can get another AA MC with another signup bonus. But if it this card was just opened a few months ago (which you imply), then closing it as soon as possible is the best alternative to keeping it two years, because then the 24-month clock will start as soon as possible (and then end, in about 2 years, as soon as possible). To keep the card 24 months, he may have to pay 2 $95 annual fees if he's not able to get a retention bonus to offset that.
There is
zero benefit in doing anything
in between closing it as soon possible or keeping it a full 24 months (plus another month for padding possibly, given that Citi has a history of counting time incorrectly). So if he can't commit to keeping it 24 or 25 months and paying up to two $95 annual fees to do it, the only other thing that makes sense is to cancel it ASAP.
The main benefits of holding the Citi AA
Plat MC (I
presume that's the one he got? or did he get the Citi AA
Gold MC or Citi AA
Exec MC?) is 10% back on AA miles redemptions (capped at 10k a year), a free checked bag on AA domestic flights, and priority boarding on AA domestic flights. Plus, in case you don't have it on any other card, it has 0% foreign transaction fees.
But of course, those benefits are only of value if you can afford to fly enough during this time (or the 0% foreign transaction fees might perhaps be of value if you happen to live near a border and drive across the border often, or purchase stuff online directly from overseas sellers).