Annual Fee: Should You Ever Pay an Annual Fee?

Does paying an annual fee make you reconsider signing up for a credit card? If you have been at this point before then you are not alone. Now, some people will not sign up for rewards credit cards even though they offer numerous value, just because they do not want the hassles that come with paying an annual fee. However, some other people think otherwise. These enthusiasts do not mind paying an annual fee every now and then, because they feel that despite the upfront cost, they feel they are getting more than enough value in return.

Annual Fee: Should You Ever Pay an Annual Fee?

In this post, I am going to be explaining a few reasons why it makes sense sometimes, and how you can determine when an annual fee is worth it.

Let’s start by understanding what an annual fee is:

What is an Annual Fee?

The annual fee is a fee that is automatically charged once a year by the credit card provider to account for all the rewards and benefits of the card. Now you may be wondering why some credit cards come with an annual fee charge since many rewards cards are fee-free. However, as a general rule, the rewards cards with the biggest perks and signup bonuses are the ones that charge an annual fee.

Most of the charge by rewards cards range between $59 and $95. Be it as it may, certain premium cards charge annual fees that are as high as $450 or more. Annual fees account for:

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Credit card perks:

Even though all cards come with some sort of benefit or the other, many rewards cards that charge an annual fee come with special perks like price protection, extended warranties, and free FICO scores.

Insurance and other protections:

Travel credit cards are specifically known to offer pricey insurance coverage as a cardholder perk. This coverage can include primary rental car coverage, trip cancellation/delay coverage, and emergency travel assistance.

Membership in rewards program:

When you charge a lot of expenses to your credit card, membership in a rewards program can help offset the cost of your card’s annual fee.

When is Annual Fee Worth It

Even though there is no laid down rules when paying an annual fee is worth it, it’s pretty easy to tell. For the most part, paying a card’s annual fee is worth it if you are receiving more back than you are paying in.

It is worthy to note that most of the top rewards credit cards waive the annual fee for the first year, which gives you the time you need to see if the added cost is worth the benefits. As long as the annual fee is due, however, these tips can help you make a decision:

  • Firstly, when you are earning enough rewards to offset the annual fee. If you are spending enough on your card each month, in order to gain rewards, then paying an annual fee would be in place.
  • Secondly, if you are using your card’s “extra benefits” frequently enough.
  • Then, when your card offers services you need to pay for. If you need to purchase services that a particular card offers, it may be wise to get a rewards card that offers that coverage as a cardholder perk instead.
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Paying a fee for a card is worth it when you are getting more value out than you are putting in.

Thus whether you are addicted to the rewards points you earn, relying on your card’s valuable insurance coverage, or enjoying the fact that credit cards in general offer superior fraud protection and liability coverage, it is ideal to pay a through card if you truly value what you are getting in return.

When You Might Want to Cancel the Card

There may be legit reasons for you to cancel a card that comes with annual fees. Let’s see some of these reasons:

  • Firstly, when you don’t use the cardholder benefits.
  • Secondly, when the rewards you earn do not cover the annual fee.
  • Also, if the card’s program or rules have changed, and the card is not available anymore.
  • Lastly, where you discover a different card that offers the same, or better, rewards for a lower fee

However, understand that closing a credit card can immediately affect your credit scores, and may impact them again down the road.

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