Annual fees aren’t always worth it, but sometimes they are. Here’s how to make the right decision.
The beauty of it credit cards is that they offer benefits that you don’t get when you make cash purchases. For example, some credit cards offer generously Money Back rewards or air miles. Others offer perks like free checked baggage when you travel by plane. However, the more robust the rewards offering, the more likely you are to receive an annual fee in return.
The annual cost of a credit card varies depending on the perks. Some cards may charge as little as $ 95 annual contribution, while others may charge $ 250 or more. Ask yourself these questions to see if an annual fee card is right for you.
1. Will my rewards more than make up for the compensation?
An annual fee of $ 95, or even higher, isn’t as bad as the card in question makes it easier to recoup a lot of money. Let’s say you’re looking for a free credit card that will give you 2% back groceries and gas, and a card with a $ 95 annual fee that will give you 3% back. If you normally spend $ 1,000 a month or $ 12,000 a year in those categories, the card with the fee will give you an extra $ 120 compared to the card at no cost. As such, you come out ahead even if you cross that $ 95.
2. Does this card offer any perks I can’t get elsewhere?
Sometimes the solid cash back isn’t the only reason to pay an annual fee. Your card can also entitle you to benefits that you otherwise could not score. For example, you may qualify for upgraded airline seats or hotel rooms if you have your travel rewards credit card to book your trips. And there is certainly value in that.
3. Is there a sign up bonus too good to pass up?
Some credit cards offer generous sign-up bonuses that reward you for making a certain number of purchases in your first few months. While it is possible to create a sign up bonus on a no-fee card, you can get a more generous bonus if you’re willing to pay for one. You may find a credit card with a $ 95 annual fee that will give you $ 200 cash back for making $ 500 in purchases during your first three months. That’s a fairly easy spending threshold, even if you don’t have high expenses. Paying that fee will still bring you out $ 105.
Always run the numbers and rate the benefits
It’s easy to assume that annual credit card fees aren’t worth it. But before you do this, do some calculations to see how much you can save in cash back form. At the same time, check which benefits the card entitles you to. You may find that while it makes no sense to apply for a credit card with a $ 500 annual fee, a $ 95 fee is worth the benefits.
Another thing to keep in mind is that some annual reimbursement cards forgo the cost of your first year as a cardholder. That gives you a great opportunity to see if the card in question is worth paying for. If you find that after a year you haven’t spent enough to recoup the cost, you can always cancel the card without losing a penny.
Finally, the fact that a credit card comes with an annual fee doesn’t mean you have to pay for it all the time or in full. It never hurts to ask a credit card company to waive an annual fee if you’ve been a cardholder in good standing for some time. You never know how far a credit card company can go to keep your business.
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