To say that you have options when it comes to your credit cards would be an understatement. There are store credit cards, airline credit cards, bank credit cards, double cash back credit cards, cards for college students, and more. Like we said, lots of options for credit cards.
Needless to say, not all credit cards are created equal — and a lot of what you can expect from a credit card (i.e., interest rates, credit limit, etc.) depends largely on your credit score. But there are other differences between credit cards as well, such as those that require an annual fee and those that do not. This annual fee, which in some cases can be as much as $500 per month, is on top of any balance that carries over and accrues interest month after month. While many may scoff at an annual renewal fee, there are times when it makes sense.
So, is an annual fee credit card right for you? Let’s take a look at some situations where it’s worth it, and other situations where it may not be worth it:
First, let’s set the record straight: When you pay an annual fee for a credit card, it’s usually a cost that offsets the biggest benefit that you’re entitled to by being a carrier of a particular card. Competitive rewards program on a card that costs $95 a year? A complimentary companion airline ticket on a card with a $195 annual fee? You’re paying for these benefits when you acquire one of these cards, at least to some extent.
Is one of these cards worth it? In most cases, it depends on how much you’re going to be using it. Let’s take a look at a few examples:
- Delta Gold SkyMiles American Express Card: This card offers a great sign-up incentive of anywhere between 30,000 to 75,000 bonus frequent flier miles upon approval, should you spend a certain amount of dollars in the first few months of receiving it. From there, it’s a $95 renewal fee, while cardholders enjoy benefits of Zone 1 seating, a free checked bag on every flight, one mile per each dollar spent, and double miles per each dollar spent on Delta flights or other special purchases. In a nutshell, this card makes sense for frequent fliers or those who travel a lot for work (assuming these professionals can use their personal card for their expenses). Just two or three checked bags can pay for the card’s annual fee. Delta also has a Silver and Platinum card that offer additional benefits (for a larger annual fee).
- Capital One QuickSilver One: This is one of the most popular “premium” cash back credit cards, and it comes at a $39 annual fee. The cash back is 1.5 percent on every purchase, up from the standard 1 point per every $1 dollar spent that most credit cards offer. To get a sense of whether or not it’s worth it for you, just picture how much you plan to spend with the card each year. If you divide $39 by 0.015, you’ll see that your break even point is $2,600. So, if you plan to use it to pay for items north of $2,600, it’s going to be worth it to you. The same applies for any cash back card that comes with an annual fee.
- Chase Sapphire Reserve: This is one of the most expensive rewards cards, with an annual fee of $450. However, there are many ways to take advantage of its perks. For starters, you’ll receive a $300 travel credit each year and up to 3 times the points on travel and dining expenses. So when you take away the travel credit, the annual fee is really just $150. Then how much you spend on travel and dining (not to mention other purchases that are 1 point for every dollar spent) can help you determine whether the fee is truly worth it or not.
So, is this type of credit card worth it for you? The good news is that most companies will let you sign up for free and then cancel without penalty if you decide that it’s not. Depending on your situation, now may be a good time to see if there’s a good fit
