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Q: Is it worth keeping a secured credit card with an annual fee?
A: Of course. A big hefty, yes!
That’s a given, folks. Now the next question that might come to your mind is probably:
Q: But why do I have to pay an annual fee on a credit card?
A: Simple. For the sake of its benefits!
However, the best credit cards in Canada can tack on a whopping $150 or even more in annual fees.
It might be a little difficult to handle when combined with the interest rates and other credit costs.
How, then, can you decide whether choosing an annual fee credit card versus a no-cost credit card is actually worth it? Let's find out!
Annual Fee Credit Card: The Basics
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As the name suggests, it’s a credit card that charges an annual fee. The annual rate varies depending on your card and the services offered.
- It might start from $39 and go all the way up to $150.
- In fact, some premium cards might also charge a hefty $640 or even more.
So, when do you pay the annual fee?
You can see the charges in your yearly credit statement and clear them off with your other balance.
Annual Credit Card: How Does It Work?
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Why do credit card providers charge fees? This particular query may be circling in your mind.
Well, the sole justification is the same as your initial purchase: the perks and rewards!
Like, getting that $350 trip package or daily points for nothing is unimaginable.
Moreover, the company requires money to maintain its top-notch service.
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The Best Part! Regardless of how much you charge to the card or whether you maintain a balance, the yearly fee remains the same from year to year. |
Annual Credit Card: How To Calculate Worth?
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How can you calculate the worth of an annual credit card? The answer is simple.
If the perks you enjoy exceed the money you spend on it annually, it’s worth it!
1. The Potential Of Rewards
To measure the worth of an annual credit card, you have to know its potential.
For instance, how far can it benefit you in stabilizing your finances? To understand the point further here’s an easy comparison:
- A travel credit card with a $65 annual fee might offer you more points, miles, rewards, and hotel discounts as compared to a card with no fee.
- In fact, they might also allow you to redeem your points and rewards in various ways.
Whereas, surely, a no-fee credit card may restrict the points to credit exchange.
Here’s how you can maximize the rewards to the best:
2. The Perk Of Score Building
If you’re paying $48 for your card, you must be expecting high rewards from it, right? That’s fair!
And helping in building your Equifax credit score is one of the top perks you can get.
- The annual fee credit card is good for people with bad credit,
- It might be easier to approve for a secured credit card if you have zero or no credit history.
In fact, a credit rebuilding card can help you practice good money habits so that your spending patterns won’t negatively influence your credit report and credit history.
3. The Story Of Credit Bonuses
Paying an annual fee on a credit card can make sense in the following situations:
- If you spend a significant amount in certain areas,
- If you are looking for a specific reward,
- If you want to earn more on every credit purchase,
- Or, you wish to get the most out of the introductory period (0% APR).
Since the rewards you will receive will surpass the annual cost of the card.
Nicole Dieker advises consumers to research and compare a credit card's rewards and benefits to know whether or not it’s worth it.
And when you are done with it, do a self-analysis to find out if you really need to enjoy all those perks to improve your financial status.
Annual Credit Card: Worth-It Perks & Rewards
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Okay, enough with all the calculations and analysis in finding the worth of an annual fee credit card.
Literally, we have been talking about the potential for a hot minute now.
Now is the time to really put a torch to everything you can get by paying for an annual credit card. So here you go:
1. The Reward Pays For Itself!
Yes!
If you clear your outstanding balance in full, use your card responsibly, and think through every purchase you make, it’s possible.
Note: However, if you tend to overspend or prefer cash over the card, you might want to consider other options.
2. Promotions Can Change The Game!
Special offers like welcome bonuses, introductory periods, etc., can increase your net benefit and frequently offset the cost of annual fees.
Of course, how long you can benefit from intro APR or a sign-up bonus depends on the annual fees or the card you’re applying for.
But, overall, the perks can be considered-worthy to get the card.
Does your annual fee credit card offer a 0% introductory APR? Here’s what you need to know:
3. The List Of Common Perks Is Never-Ending!
As previously mentioned, the annual fee may be a beneficial investment if the rewards you receive outweigh the cost.
However, you must regularly utilize those credit card perks to get a fair comparison.
For instance, the following is a brief list of various benefits with an estimated price you might pay for them:
- Airport Lounge Access ($120 to $430 or more)
- Lounge Visit ($38 to $99 or more)
- Free checked bags ($30 or more)
- No foreign transaction fee (2% to 3% per transaction)
- Travel Insurance ($150 to $228 or more)
In fact, the travel insurance will cost you around 5% to 7% of your total trip cost.
See: Use Travel Reward Cards Without Falling Into Debt
If you combine the total cost, the bill literally reaches the sky. :( Not with an annual fee credit card!
You can enjoy all these for free or at a better-discounted rate by using your card wisely.
Annual Fee Credit Card: What’s The Catch?
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Nothing comes for free, especially if you’re talking about all those credit card benefits discussed above.
So, what’s the downfall of an annual fee credit card? Can you avoid paying the fee and still enjoy all those perks? Here are your answers:
Perks Won’t Last Forever!
You might rethink your choice if you are solely buying an annual fee credit card to enjoy the 3-month 0% introductory APR or the $150 sign-up bonus.
- Would you still use the card after utilizing your welcome bonus?
- Is the card worth it after the introductory period ends?
Compare if you can still enjoy most of the credit benefits even after the promotion period ends.
You Bought The Card For Emergencies!
You can pile up the benefits by regularly using the card.
So, if you bought a good card but aren’t using it, all the benefits will go to waste!
You got the point, right?
Now the final question:
Can You Avoid Paying The Annual Fee?
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The answer depends on why you are buying the card in the first place.
If it’s just another card to enjoy the promotions, you might want to avoid the annual fee.
However, if you want to increase your credit score quickly, build a good credit history, and enjoy the travel points and other offers, then it’s totally worth it to pay for the card.
Final Thoughts
An annual fee credit card is definitely worthwhile if you use it frequently enough.
Moreover, the more you use the card, the more you’ll earn on it, thus moving forward to prove the “annual fee pays for itself” claim.
However, if you find it hard to manage your credit cards wisely, you might want to avoid getting the card, as it can increase your credit card debt.
But, overall, weigh the perks and then take your decision!
