Is paying an annual fee for a credit card worth it?

19 November 2020 Thursday 18:10
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Is paying an annual fee for a credit card worth it?

“Is it worth it? Let me work it. I put my thing down, flip it, and reverse it. Ti esrever dna ti pilf, nwod gniht ym tup.” – Missy Elliott

Now that we’ve got your attention, paying an annual fee for a credit card can be worth it, but ultimately, it depends on whether the benefits will outweigh the cost, in a sense paying for itself.

When paying an annual fee is worth it

Whether you have good credit or bad credit, there are scenarios when it makes sense to get a credit card with an annual fee. If you have bad credit, you might not be able to qualify for a card with no annual fee, and a card with an annual fee can help you improve your credit. If you have good credit, you’ll likely find it easier to make up the difference of the annual fee with rewards. Here are some ways paying an annual fee can be worthwhile.

The rewards offset the annual fee

If you’re the kind of person who puts nearly all of your expenses on your credit card, then you’re likely to reap the many rewards that come with an annual fee credit card like big sign-up bonuses, higher cash-back rewards, travel perks, and more.

You use your credit card’s “extra benefits” often

Many credit cards with annual fees come with benefits that are somewhat hidden. This can include anything from zero-liability policies and price protection to trip cancelation/trip delay coverage and no foreign transaction fees. If you frequently take advantage of these additional benefits, an annual fee card can be a great option.

You get services you’d pay for anyway

If you find yourself purchasing insurance when you rent a vehicle, you could think about putting those funds toward an annual fee credit card instead. Many annual fee credit cards come with primary rental car coverage, which would allow you to waive what the rental car company offers. In other cases, your annual fee card may cover the cost of TSA Precheck or Global Entry, which could potentially offset the cost of the annual fee right off the bat. And if you’re planning on enrolling in one of the programs anyway, why not have your credit card pay for it?

When it’s better to avoid the annual fee

Depending on your situation, fronting the money for an annual fee may not be the best way to go. There are other times when it makes more sense to go with a no-annual-fee credit card.

You want to take advantage of an introductory offer

Balance transfer credit cards are a great way to consolidate your credit card debt because they often come with a 0% introductory APR offer that can last up to 18 months. Most balance transfer cards with these offers come with no annual fee, but be mindful that there may be a balance transfer fee.

You don’t use your credit card often

If you’re the type of spender who only occasionally uses a credit card, splurging for an annual fee card likely doesn’t make much sense. Making the most of an annual fee card typically requires a certain amount of spending, especially if you want to capitalize on a sign-up bonus.

Updated: 20.11.2020 13:36