Should You Avoid Credit Cards With Fees?
"Never pay a fee for a credit card"
While this has become less common with the general proliferation of rewards cards, it does commonly come up when clients ask about which credit cards they might consider. It seems to be a vestige of parental advice from the 80’s and 90’s where credit cards were limited and paying a fee rarely conferred any additional benefits to the card holder. However, the world has changed and while we generally want to avoid paying fees that is not the only metric to use when comparing cards.
Why consider a card with an annual fee?
If you are a savvy consumer and identify a card with benefits you are likely to utilize, the annual fees on most cards can pay for themselves many times over. For example, let’s consider one of the more expensive cards available. We will not identify the card issuer because we are not endorsing the card but it is an excellent object lesson. While the card itself has an eye watering annual fee, the benefits list is incredibly long and favors those who like to travel. Let’s dig into some details.
- $200 annual hotel credit
- $200 annual airline credit
- $179 annual credit towards CLEAR which is enhanced TSA precheck
- Airline lounge access, which normally runs $40 to $75 per person per day
- Free room upgrades and credits at certain hotels
And this is just scratching the surface. There are Uber credits, credits at retailers, and the list goes on. We recently took a 4-night, 5-day trip to escape the winter weather. Upon arrival at the hotel, we received an upgrade to a suite and $75 per day credit for dining at the hotel’s restaurants. In total, the airline and hotel credits plus $375 in dining credits paid for the annual card fee in a single trip. Everything else is added benefit at this point and well worth the initial fee.
Things to keep in mind when comparing cards
- Categorize your spending - Cards put different spending in categories and assign points accordingly. Certain cards may give bonus points for specific types of spending, such as dining or travel. Add cards that reward your most regular, highest dollar value spending categories.
- Pick one or two primary cards – It can be difficult to optimize if you are juggling five different rewards-based credit cards.
- Look out for sign up bonuses and make sure you get yours - Many cards will offer 50,000 to 100,000 points simply for signing up. That is $500 to $1,000 in free money. Make sure you meet any requirements, which typically involve spending a certain amount in the first three to six months.
- Don’t fall into the spending trap – Some people will spend more “because they are getting points”. Spending $100 to get $10 in points is a losing proposition.
- Review your perks and take advantage - Most cards have a long list of perks in addition to typical rewards or cash back. All the benefits add up and can enhance the value of a particular card.
- Pay off your balance each month - Rewards are great. Paying high interest on a balance is not.
Ultimately, credit cards and associated points programs have come a long way and just because a card carries an annual fee, it does not mean it is a bad deal. For information on making the most of credit card rewards, click here.
This is not a recommendation and is not intended to be taken as a recommendation. This material was prepared for general distribution and is not directed to a specific individual.
LPWM LLC does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisers.