Should You Apply for A Card with an Annual Fee?

When it comes time to get your first credit card, or perhaps get a new credit card, take time to sit down and make a list of everything about the cards that you're interested in.  The PROS and the CONS.  Depending on your credit level, the cards you're interested in, the rewards available (if any), and the fees attached to the credit cards, you can either save a bundle or end up paying an annual fee that simply doesn't make it worthwhile to get the credit card at all.  But, are there actually times when paying the annual fees on certain credit cards makes sense?  

Let's look at some of the reasons you might consider paying those annual fees:

You have a Limited Credit History:  If you're just starting out, it's not always easy to get a credit card in the first place.  Most of the top credit card companies reject your application right off the bat, others promise a certain amount of credit, but hit you with a hefty fee (up to half of the credit limit), and still others charge a higher than normal interest rate.  

Unfortunately, many of the credit cards that are marketed to customers with limited or no credit history also charge an annual fee. However, for these types of cards, you'll typically see an annual fee that's less than a $100, but when it costs you the $100 just to get a credit limit of $200-$300, it's very frustrating to say the least.  But, if your credit score is very low and you're serious about building it up, then this may be the best way to start, so don't discount these credit cards without considering whether it will work for your circumstances.  Sometimes, the end justifies the means.  

2. You Don’t Qualify for a No-Annual-Fee Card

What if you’ve established credit, but it’s not very good? You may not qualify for a mainline cash-back credit card with no annual fee. You may not even qualify for a basic no-annual-fee card designed for cardholders with average credit, like the Capital One Platinum card.

If that’s the case, begin with a fee-bearing secured credit card. With responsible use, it won’t be an indefinite condition, as the best secured credit cards offer a clear upgrade path — on the order of months, not years — for users who make payments on time and utilize credit appropriately.

3. You Plan to Capitalize on a 0% APR Purchase Promotion

Don’t apply for an annual-fee credit card solely to take advantage of a 0% APR purchase promotion. The leading low-APR credit cards with long 0% APR promotions usually don’t charge annual fees. Nor do no-annual-fee cash-back cards like the Capital One Quicksilver credit card, which has a 15-month 0% APR purchase promotion that pairs with unlimited 1.5% cash back on every purchase every day.

That said, a long 0% APR promotion can serve as a tiebreaker when one or more additional fee-favoring conditions are present. For instance, the Blue Cash Preferred® Card from American Express (read our American Express Blue Cash Preferred review) is a top choice for cardholders who spend heavily on gas and groceries. The 6% cash-back rate on grocery store spending, up to $6,000 in annual supermarket purchases, offsets the $95 annual fee several times over when fully exploited.

Blue Cash Preferred also has a 12-month 0% APR promotion on purchases. That comes in handy if you need to drop serious dough at the supermarket ahead of a big event, like Christmas or a graduation party, and don’t have the financial breathing room to pay off the entire purchase in a single month.

4. You Can Easily Clear Minimum Spending Requirements for Your Preferred Card’s Welcome Bonus

Many if not most annual-fee credit cards offer spending-based enticements to new cardholders — variously known as sign-up bonuses, early spend bonuses, welcome offers, and new card member offers, depending on the issuer.

Some enticements are very generous. For example, the Chase Sapphire Preferred card’s sign-up bonus promises 60,000 bonus points when you spend at least $4,000 on eligible purchases within three months of opening your account. That’s a $750 value when redeemed for bookings in the Chase Ultimate Reward travel portal. Sapphire Preferred’s $95 annual fee pales in comparison.

If you can exceed the minimum spending requirements for an annual-fee credit card’s new cardholder enticement without upending your budget, eating the annual fee for the first year or two may be worth it to you.

5. You Travel Frequently & Aren’t Brand-Loyal

Most premium general-purpose travel rewards credit cards carry annual fees. Some clock in around $100, a relatively modest level, but others rise north of $400.

For frequent travelers who aren’t loyal to a particular airline or hospitality brand, that kind of annual outlay can be worth it. When evaluating annual-fee travel cards, look for benefits such as:

  • Complimentary Airport Lounge Access. The most valuable airport lounge access deals aren’t limited to airline-branded lounges, like United Club or the Delta SkyMiles lounge. The Chase Sapphire Reserve® card (read our Chase Sapphire Reserve card review) and The Platinum Card® from American Express (read our Platinum Card from American Express review) both offer access to more than 1,000 airport lounges worldwide through complimentary memberships in Priority Pass Select and the Global Lounge Collection, respectively. With unsubsidized lounge admission typically running in the neighborhood of $60, the value adds up fast.
  • Annual Travel Credit. For frequent travelers too busy to visit airport lounges regularly, the annual travel credit delivers the best combination of value and convenience. Cards with annual travel credits automatically credit eligible purchases until you reach the annual spending cap. For instance, Chase Sapphire Reserve’s $300 credit offsets your first $300 in eligible travel purchases each year, effectively reducing the $450 annual fee to $150.
  • No Foreign Transaction Fees. Most premium credit cards waive foreign transaction fees. If you routinely travel outside the United States, don’t forget your card. You could reduce your net international spending by up to 3% — the standard foreign transaction fee on most cards.
  • Global Entry Application Fee Credit. You only need to reapply for Global Entry every four or five years. But a $20 to $25 annualized subsidy still isn’t bad when combined with more substantial benefits like airport lounge access or waived foreign transaction fees.
  • Car Rental Insurance. Most premium travel credit cards offer complimentary rental car insurance — usually collision and loss — when cardholders pay for the rental in full with the eligible card and decline the rental company’s offer of insurance. It only takes one unfortunate incident for this perk to pay off many times over. In the meantime, cardholders don’t have to worry about paying extra for rental company coverage that may or may not be adequate.

Man Traveler Waiting For His Flight Airport Airplane WindowMan Traveler Waiting For His Flight Airport Airplane Window

6. You Travel Frequently, Usually With the Same Brands

Brand-loyal travelers have different priorities than brand-agnostic travelers. Luckily for them, dozens of co-branded credit cards are happy to oblige.

The two most common types of co-branded cards are airline and hotel credit cards. Regardless of the annual fee, when choosing a co-branded card, pay attention to two things in particular:

The two most common types of co-branded cards are airline and hotel credit cards. Regardless of the annual fee, when choosing a co-branded card, pay attention to two things in particular:

  1. The size and reach of the brand as measured by property count for hotels and destinations served for airlines
  2. The number of partner brands, if any, that accept direct redemptions or transfers of the brand’s loyalty currency

Unless you already know you only plan to visit the same few destinations for the foreseeable future, those two metrics reveal how widely you can use your card and how likely you are to confine most of your travel spending to its ecosystem.

Beyond these, look for co-branded cards with the following perks.

  • Complimentary Airport Lounge Access. Co-branded cards generally restrict complimentary airport lounge access to branded lounges, such as the Delta SkyMiles Lounge for Amex’s Delta SkyMiles credit cardholders. However, some participate in multibrand lounge networks.
  • Complimentary Hotel Club Access. Though not as common, some hotel credit cards, like the World of Hyatt credit card, offer discounted or complimentary access to exclusive club or lounge areas at high-end properties. These facilities often feature complimentary food and beverages along with other perks of entry. And they frequently have stunning views.
  • Automatic Loyalty Status. Many hotel credit cards offer complimentary loyalty status, usually at a lower or middle loyalty tier. Status benefits often include perks like higher base point earning rates, complimentary room upgrades, and free breakfast, though the specific benefits vary by brand and property. Without a card, you must stay with the hospitality family at least 10 nights per year — and sometimes many more — or meet high minimum spending thresholds to qualify for the same status, so this perk can be invaluable. Some luxe general-purpose travel cards offer automatic loyalty status as well. The Platinum Card® from American Express promises automatic Marriott Bonvoy Gold Elite status and automatic Hilton Honors Gold status.
  • Accelerated Progress to Higher-Status Levels. Other co-branded cards accelerate cardholders’ progress toward status tiers. The American Express Delta Reserve card’s welcome offer includes a portion of Medallion qualification miles, the currency of Delta’s SkyMiles Medallion loyalty program, which they typically reserve for true road warriors.
  • Complimentary Award Travel. Complimentary travel is a common feature of premium co-branded credit cards. Some hotel cards offer one or more free nights each year to cardholders in good standing, a perk that by itself can more than offset a sub-$100 annual fee. Many offer additional spending-based opportunities to earn a free night or flight awards.

7. You Can Spend Heavily Enough to Offset the Annual Fee With Rewards

Frequently, moderate to heavy spenders can easily offset the annual fee with rewards on purchases they commonly make.

As an example, Chase Sapphire Preferred cardholders who spend more than $3,800 on dining and travel combined each year earn enough rewards to offset the $95 annual fee.

But the lift becomes heavier as the annual fee increases. Assuming a 5% return on travel spending and not factoring in its airline fee credit, you’d need to charge at least $11,000 in travel to your American Express Platinum card each year to break even.

8. The Card Has Generous Benefits Aligned With Your Lifestyle & Spending Patterns

This scenario usually overlaps with the preceding two, as these benefits are most often associated with premium co-branded and general-purpose travel credit cards. That doesn’t dent their potential value, though.

  • Partner Currency Transfers at Favorable Transfer Ratios. For cardholders with multiple travel loyalty memberships, the potential benefit of this value is difficult to overstate. The best general-purpose travel credit cards, including the Chase Sapphire Reserve® and Chase Sapphire Preferred® cards, set point transfer ratios at 1-to-1 — that is, cardholders may convert 1 point of card loyalty currency to 1 point or mile of partner currency. Since partner currency is usually worth more than card currency, the value of which rarely exceeds $0.015 per point, this is a fantastic way to boost rewards value without much effort.
  • Airline Fee Credit. A general-purpose travel card benefit — most notably of The Platinum Card® from American Express — airline fee credits are enticing for brand-loyal frequent travelers. Platinum’s $200 annual airline fee credit offsets incidental fees, such as baggage fees, charged by one airline of your choice. It effectively reduces the Platinum card’s $550 annual fee to $350 when fully exploited.
  • Hospitality Benefits. Premium co-branded and general-purpose cards alike frequently offer complimentary hospitality benefits — such as complimentary room upgrades and experiences — for guests of specific hospitality brands or collections. Amex Platinum’s Fine Hotels & Resorts benefits are worth an average of $550 per stay, according to American Express. Its Hotel Collection benefits include a complimentary $100 hotel credit to redeem for dining, spa, and resort charges.
  • Brand-Specific Credits. Some travel cards offer credits against purchases made with specific brands. Amex Platinum’s Uber credit, worth up to $200 per year, is particularly generous. Multiple Amex credit cards offer $10 per month in credits against purchases with Seamless and GrubHub, two popular food-delivery apps. Multiple Chase cards offer accelerated points or cash-back earnings on Lyft rides (through March 2022). And the Chase Sapphire Reserve® card offers up to $120 in DoorDash credits over two years (through 2021) plus a complimentary DoorDash DashPass subscription for a minimum of one year. These and similar promotions are more vulnerable to discontinuation than core benefits, so check with the issuer before applying.

9. The Issuer Offers a Clear Downgrade Option

If you decide a year or two into card membership that you’re not getting your money’s worth from your annual fee card, it’s nice to have the option to downgrade your card to a no-annual-fee alternative without closing the account. Closing it can reduce your total available revolving credit and increase your credit-utilization ratio — possibly to the detriment of your credit score.

If it’s not clear whether your preferred card offers a downgrade path, ask the issuer. They probably have a downgrade policy, even if it’s not clearly communicated on their website.

Final Word

Annual-fee credit cards almost always have more generous rewards programs and more valuable perks than comparable annual fee-free credit cards. The dichotomy between the generous fee-bearing Blue Cash Preferred® Card from American Express and the less generous fee-free Blue Cash Everyday® Card from American Express is just one example. Blue Cash Preferred earns double the rewards on grocery store spending and 50% more rewards on gas station spending.

If you’re able to capitalize on any of the scenarios described above to negate your fee-bearing card’s annual fee each year, that card is likely a superior alternative to any annual fee-free equivalent.

And that’s if you even have to pay the card’s annual fee each year. Your mileage may vary, but it’s an open secret that credit card issuers have the discretion to waive annual fees. The 10 or 15 minutes it takes to call your issuer and threaten to close your account can pay off handsomely.

Do you have any annual-fee credit cards? How do you offset those recurring charges and maximize your cards’ rewards and benefits?

Editorial Note: The editorial content on this page is not provided by any bank, credit card issuer, airline, or hotel chain, and has not been reviewed, approved, or otherwise endorsed by any of these entities. Opinions expressed here are the author's alone, not those of the bank, credit card issuer, airline, or hotel chain, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

Back to School Shopping?

Worried about where you’ll find the money for all those back to school expenses? Between new clothes, new shoes, backpacks, notebooks, and new electronics, it can get really expensive… and that doesn’t include all the book fees, lunch money, athletic fees, and other expenses that you’re expected to pay up front!

Relax. With Fingerhut, you can afford everything you need to get the kids back in school. Name brand clothes? The newest shoes? Backpacks? Notebooks? A new computer? Yep, with Fingerhut, you can get all of this and more. And it won’t wreck your budget, either!

Fingerhut offers thousands of name brand items at competitive pricing, with low monthly payments, shipped right to your door!   What could be easier than that?

Simply apply for your Fingerhut Credit Account issued by WebBank and start shopping today!

The Best Way to Free Up Some Cash

Monthly credit card bills eating up all your cash?

Even if you’ve got reasonably good credit, you can still find yourself with too many credit card bills, and those bills can ruin your budget, cause you to be short on cash, and they can even cause you to go deeper into debt.  That’s right, too many bills can actually drag you deeper into debt, even as hard as you’re working to pay them off!

How many times have you paid all your bills and then had to use a credit card to pay for groceries because you’re short on cash?

That kind of defeats the purpose of paying extra on your credit cards, doesn’t it?  But, if you keep only paying the minimum payments, it can take years to pay off those credit cards, and you can’t afford to be strapped forever, can you?  And you don’t want to risk ruining your credit with the traditional “debt consolidation” companies out there, so what do you do?

If you’ve got good credit, the best way to free up cash in your monthly budget without ruining your credit score is to take out a personal loan to pay off those high interest credit cards.  Then, instead of having to pay a bunch of different sized payments every month, you’ll simply make one payment (typically a lot less than you’re paying now), once a month.  Terms for personal loans range from 36 months to 60 months.  That’s far less than the 7-10 years that it takes to pay off credit cards if you only make the monthly payment.

Think a personal loan might be the right choice for you?

If you’re serious about freeing up some cash AND getting out of debt sooner rather than later, one of the best options is a personal loan. With a personal loan, you’ll finally be able to pay off your credit cards, free up extra cash in your monthly budget, and start paying off all your debt. And you’ll probably save a lot of money while you do it!

The average personal loan saves the borrower hundreds, if not thousands, over the course of the loan. Money that you could use elsewhere. So, go ahead, apply for your personal loan today, and plan what you’ll do with the extra money in your budget tomorrow!

Applying is free, easy, and fast!

Resolve to Be Financially Ready for 2017

A new year brings new resolutions. In fact, 45% of Americans typically make New Year’s resolutions, according to a Statistic Brain survey, and 34% of those resolutions are related to money.

Resolutions can sometimes be difficult to keep, but a few simple principles can help you stay on task. The USAA Financial Rediness Score FRS tool incorporates our core advice principles and helps you see where you stand today. It also suggests steps you can take to improve financially and stay on course if challenges arise.

Let’s discuss those principles:

Spend less than you earn. This sounds simple, yet it has become more challenging. Everywhere we turn, we’re bombarded with advertisements, credit offers, solicitations for money — and the list goes on. FRS helps assess whether you manage your spending and credit in a healthy manner and points you to additional resources for help.

Protect your life, loved ones and possessions. We are a financial services company that offers insurance, but that’s not why this principle is important. Imagine you’re in an at-fault automobile accident and have insufficient coverage, putting your finances in jeopardy.

Or what if you depend on a loved one for income and he or she dies, leaving you to struggle both emotionally and financially? FRS will assess your current coverage and guide you to find out how much insurance you may need.

Save enough for emergencies. Unfortunately, no one is immune to life’s many curveballs. You can either be prepared or put your financial goals at risk. FRS will assess whether you have an adequate emergency fund and help you create a plan to achieve this goal if you haven’t already.

Save now for retirement. Young, old or somewhere in between, retirement planning is important. The sooner you get started, the better off you may be. FRS will assess your retirement needs and help you dive deeper into retirement planning.

Have a will and other legal documents.

Whether single or married, with or without kids, everyone should have some basic legal documents in place. Wills are not just for the wealthy.

Have a plan, review it annually and update with major events.

Getting from point A to point B is much easier with a map. Having a plan for your financial goals is no different. This can be as simple as a starting with a budget, but everyone should know what they need to do financially and the steps needed to get there.

I encourage all of you to stick with your money-related New Year’s resolutions in 2017 and beyond. If you haven’t already, use the FRS tool for your own assessment. I’ve got a few money-related resolutions of my own, and FRS has given me a road map to help.


‎01-09-2017 07:10 AM

Content provided courtesy of USAA.

By Mikel Van Cleve, CFP®