Credit card companies have always tried everything they can legally do to squeeze extra money from their cardholders. Recently, more credit card offers are coming with annual fees. Some of these cards come with special benefits. However, do these cards make sense for you?
For most credit cardholders, paying an annual fee for the privilege of borrowing money on a credit card isn’t an appealing offer. A card that charges a fee regardless of whether you use it is an extra expense that can easily be avoided. So, why would anyone choose a credit card that charges a fee over one of the many no fee cards available? There are situations where it makes sense to do just that.
Credit cards that come with an annual fee are typically called premium cards. As such, these cards offer benefits and rewards not found with most other so-called free cards. If a person wants an airline credit card tied to a specific airline, she can expect to pay a fee of between 50 to 100 dollars for this perk. In some situations it can make financial sense for a card holder to pay an annual fee. Here are a few of these situations:
1.) Business owners who spend a lot on their credit cards may benefit from the perks of premium cards. If a business owner uses her credit card for travel and business expenses and receives a 1% to 2% return on all purchases, an annual fee can be a worthwhile expense.
2.) Any individual who spends more than $20,000 a year with on a rewards credit card is likely to benefit from a premium card. Typical points accumulated on a reward-based premium card are equivalent to around one cent for every one dollar spent. If the annual fee on such a card is $75, then the card holder would need to spend $7,500 to justify the cost. If you want to profit from your card, you need to spend much more than $7500. And even then an annual fee may be a frivolous rewards waster.
As you can see, there are situations where paying an annual fee in return for credit card rewards is worthwhile. Not everyone would benefit from paying the annual fees however, and your personal spending habits should determine whether it makes sense for you. As always, use your credit wisely, make your payments on time, and don’t pay for more than what you need.
Choosing the Best No Annual Fee Rewards Credit Card
Cash Back is the Best Credit Card Reward: If you want a credit card with no annual fee rewards, cash back credit cards will likely provide the most benefits. And unlike airline miles or points, your rewards have a real value.