Woman paying with credit card
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Not paying an annual fee on a credit card would seem preferable to paying an annual fee. But it’s not that straightforward. In some circumstances, having a card with a yearly fee is more than worth it.

Cashback on purchases

Credit cards that offer 5 percent cash back on groceries and 3 percent cash back on gasoline often come with annual fees. After weighing the cashback rewards, however, you may find that a $125 fee every year is worth it. If you pay for your living expenses with your card and diligently pay the entire balance each month, you will come out several hundred dollars ahead.

Sign-up bonuses

Frequent-flier miles, rewards points and credit for baggage fees are just a few of the incentives credit card companies offer to get you to open an account. You might even get a free airline ticket for signing up.

If the value of the sign-up bonus is more than the annual fee, consider getting the card. For example, if the annual fee is $75 and the plane ticket freebie is worth $500, the card would be worth it to some.

Sometimes sign-up bonuses require you to reach a certain spending limit, though, so read the fine print. For example, you might earn 40,000 rewards miles, but only after you spend $3,000 in three months.

Rewards points

Ask yourself if the rewards points are worth more than the annual fee. For example, putting your daily expenses on the card may earn you several free airline tickets over the year. Many airline cards offer extra travel perks, including free luggage checks, expedited security clearance and access to airline lounges. Again, this saves you money only if you were planning to travel and pay off your balances monthly.

Buyer beware

If you carry a credit card balance, any rewards you accrue are not likely to exceed the amount of interest you’ll pay. When carrying a balance, the interest rate is one of the most important factors to consider. Some cards offer lower interest rates but charge an annual fee.

Depending on how low the interest rate is, you may spend less with an annual-fee card than you would on the higher-rate card with no annual fee. Also, if credit card incentives require you to spend more money than you normally would, you’re not financially benefiting from the incentive.

How to get rid of the annual fee

If you want to ditch your credit card’s annual fee, there are several things you can do.

Ask for the fee to be waived. Sometimes all you need to do is ask nicely. Credit card companies spend a lot of money to obtain new customers. It may be worth it to them to waive the fee to keep your business. This gives you a card with no fee without sacrificing the perks.

Downgrade to a basic credit card. Sometimes credit card companies offer two versions of one card. The premium version offers extra rewards and may require an annual fee. The basic version may offer no annual fee but come with few or no rewards. If the rewards aren’t worth the costs, ask your credit card company to move you to the card with no annual fee.

Use rewards points to pay the fee. If you are using your card for the rewards, you might be able to use a portion of the rewards to pay the annual fee. Some credit card companies have special plans that allow you to redeem a certain amount of points to pay the annual fee.

Cancel your credit card

Most credit card companies will reimburse you the cost of the annual fee if you cancel the card within 30 to 60 days of being billed the fee. If you cancel your card midway through the year, your card issuer usually will give you a prorated refund of the fee.

Use Bankrate’s calculator to figure out whether a balance transfer would be good for you.

 

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