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Does this scenario sound familiar?

You’re researching travel rewards credit cards because you heard that they can save you a lot of money on travel (this is true). You’ve analyzed all the perks and benefits, and you’re particularly excited about the awesome annual credits and that nice welcome sign-up bonus.

You go to hit the “apply now” button and then you notice “Annual Fee – $95”.

Ugh! You instantly cannot justify paying an annual fee just to hold a credit card. After all, why should you pay the credit card company to use your own money, right?

Not necessarily!

Paying a credit card annual fee in many cases is completely justifiable and also smart. Want to know why? I’ll break down the math and show you how paying a credit card annual fee can be really worth it and help you meet your travel goals!

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Do you shop at Costco?

We all love shopping at Costco, Sam’s Club, or any other wholesale store, right? If you want access to shop at one of these places you need to pay an annual membership fee. Some people pay the Costco membership fee just for the hot dogs. Seriously.

And none of us think twice about paying that membership fee to spend money at Costco because we already know that we’re getting great value. The same can be said for credit card annual fees.

So just as a Costco membership grants you access to exclusive products and discounted prices, the right credit card with an annual fee can gain you access to a world of discounted flights, luxurious hotel stays, and a plethora of travel benefits that far outweigh the fee.

Travel rewards credit cards with annual fees often provide a range of travel-specific benefits like car rental insurance, travel insurance, airport lounge access, and concierge services.

These perks can greatly enhance your travel style, making every travel experience more comfortable and convenient. When you add up the value of all of these benefits and perks, you may be coming out ahead by paying the credit card annual fee. Let me tell you how!

How to Know If a Credit Card Annual Fee is Worth it

Just because I say that credit card annual fees can be well worth it, does not mean that it always will be for your specific spending habits and travel goals. It’s essential to weigh the benefits of the credit card against the annual fee before you apply.

Does applying for new credit cards hurt my credit score?

The short answer is no. Applying for new credit cards alone will not have a long-term negative effect on your credit score. I cover this and other points and miles myths in this blog post.

Your Finances

Before you even consider a new credit card you should evaluate your financial situation and make sure that you’re in good shape to apply for a new credit card.

  • What’s your credit score? Is it 700 or higher?
  • Do you carry a balance on your credit cards?
  • Do you always pay your bills on time?

The only way that paying an annual fee for a credit card is worth it (regardless of whether you like the perks and benefits) is if you pay off your statement balance every month in full and on time.

The APR on credit card balances likely starts around 14% and in many cases is much higher. It does not make sense to pay an annual fee and interest fees every month for a credit card. You’re throwing money away.

That’s not what we’re about, we want you to be the one taking advantage of the banks not the other way around.

So, if you’re not in the right financial situation to open up new credit cards, that’s ok. You can download apps like Credit Karma or Experian Boost to help you understand your credit score and ways to improve it.

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Welcome Sign-Up Bonus

Probably one of the biggest reasons to get a new travel rewards credit card is the hefty welcome bonus. A nice welcome bonus can accelerate your points earning which means getting that almost free flight or hotel stay even faster.

But not all welcome bonuses are created equal. A welcome bonus for a hotel co-branded card may seem like a lot, but when you go to redeem those points you may realize that you’re gonna need a lot more points for it to be worthwhile.

That’s why I suggest going for credit cards with flexible points currencies from banks like Chase Ultimate Rewards, Capital One Venture Miles, or Citi ThankYou points. These points can be transferred to travel partners, giving you a lot more options when it comes to redeeming points.

Even if just for the first year, a welcome bonus can make an annual fee well worth it. Here’s an example:

Let’s say there’s a welcome bonus that will earn you 60,000 Chase Ultimate Rewards points when you apply for the Chase Sapphire Preferred® Card which has an annual fee of $95.

If you were to redeem those points in the Chase Ultimate Rewards travel portal you would get a minimum value of 1.25 cents per point which equals $750 worth of travel.

So $95 to get a minimum value of $750? Yeah, I like that math.

And if you transferred those points to travel partners you may get even more value. Just be sure there is award availability before you transfer points to travel partners. You can’t transfer them back.

If you’re not sure about whether the welcome bonus will be worth it, I’d suggest doing some award searches to see how many points your dream trip is going to cost during any given time period.

If you’re flexible, you can snag some deals during off-peak dates. You can use free sites like Roame to give you ideas on award costs or you can search directly on the supplier website and search by “points” or “miles” instead of cash.

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Annual Credits

Some travel rewards credit cards offer annual credits that can be used for things like travel, shopping, or dining. You should review whether the credit card you’re interested in offers annual credits and the policy for these credits.

Ask yourself – Will you use these credits with very little effort? For example, some credit cards will come with credits for things like TSA Precheck or Global Entry, or shopping at Saks. You don’t have to use every single credit offered, but make sure you’d use enough to make the annual fee worth it.

There are points and miles apps out there that can help you make the most of these credits like, Cardpointers.

Here are a couple of examples:

Chase Sapphire Preferred® Card annual fee $95 – this card is one of my favorites and includes a $50 annual travel credit through the Chase Ultimate Rewards portal. This credit can offset the annual fee making it only $45. And with other benefits like primary car rental insurance, no foreign transaction fees, trip cancellation/interruption insurance, baggage delay insurance, and more, it’s a pretty good deal.

Capital One Venture X Rewards Credit Card annual fee of $395 – this card is another good one that includes up to $300 annual statement credit for bookings through Capital One Travel. This credit can offset the annual fee cost to only $95. Plus you’ll get unlimited access to the Capital One lounge and Priority Pass airport lounges worldwide (free food and drinks) which is a pretty nice perk and well worth $95.

If that’s not enough, with the Capital One Venture X, you’ll also receive up to a $100 credit for Global Entry or TSA PreCheck every 5 years. This is not an annual credit, but you’ll basically get Global Entry or TSA Precheck for free for one person which can save you a lot of time at the airport.

These are not even all the perks and benefits that come with these credit cards, but already I can see the annual fees being well worth it for me or even a less frequent traveler.

Purchase Protection and Extended Warranty

Credit cards offer valuable purchase protections that can save you money in the long run. For example, if you buy a TV with a credit card that provides this benefit and the price drops shortly after your purchase, you can submit a claim to the credit card company for a refund of the price difference, up to the specified maximum benefit amount.

Remember to review the restrictions and limitations for these claims. Each credit card has its own terms and conditions, which outline eligibility criteria, maximum claim amounts, and other relevant details.

The same goes for extended warranty protection, for some purchases made on the credit card, you may be able to extend the warranty for something like a dishwasher or washing machine once the manufacturer warranty has expired. This can be a great perk! Just make sure to check the details and terms of your credit card’s extended warranty protection.

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Travel Insurance

Most travel rewards credit cards with annual fees offer some form of travel insurance coverage, including trip cancellation/interruption insurance, baggage delay/loss insurance, and emergency medical coverage. You may have to pay for the entire trip or at least a portion of the trip depending on the specific credit card.

Having these protections in place can provide reassurance during unexpected situations while traveling. You’ll want to review the policies in detail to make sure you understand the coverage for the specific credit card. In many cases, there is a time limit to file a claim so if something does happen, you’ll want to file the claim as soon as possible.

Airport Lounge Access

Airport lounge access is one of my favorite perks! But to make this perk worth the annual fee you should think about how often you’ll be traveling through airports.

You’ll also want to consider whether there are lounges available at these airports that you can access. Not all airports will have lounges accessible to you. You’ll also want to keep in mind that not all airport terminals connect, so flying through a certain airport doesn’t guarantee lounge access.

Airport lounges offer complimentary snacks, beverages (yes, including alcoholic ones!), Wi-Fi, workspaces, and even amenities like showers or spa services. They usually provide a nice and relaxing environment, making layovers or delays more enjoyable.

Airport lounges also vary in the quality of food, drinks, and comfortable seating spaces. Check out Lounge Buddy or the Priority Pass app for photos and reviews of lounges.

I’ve had some great experiences and some just ok experiences, but I’ve never been to a lounge and thought it was worse than sitting by my gate. Lounges can also get crowded so if you’re traveling during peak times there’s no guarantee that you’ll gain entry and may be put on a waiting list.

Premium Hotel Benefits

Many credit cards with annual fees provide elite hotel status or perks when booking through their travel portal.

For example, the Capital One Premier Collection offers benefits that can include possible room upgrades, late check-out, complimentary breakfast, or experience credits. If you don’t hold hotel elite status this can be a great way to get similar perks without the added work of chasing status.

Other credit banks with luxury hotel programs include AMEX, Chase, and Citi.

Redemption options

When redeeming credit card points, not all options are equal. Co-branded airline or hotel credit cards limit you to their loyalty program, which may not always provide the best value.

However, with credit cards offering flexible points currencies like Chase Ultimate Rewards, AMEX Membership Rewards, Citi ThankYou points, or Capital One Venture Miles, you gain more options.

These programs offer extensive redemption choices and increased flexibility. You can transfer points to various airlines and hotel partners and can often find amazing deals when transferring points to the right program at the right time.

If transferring points isn’t your thing, you can redeem points directly through the credit card’s travel portal, securing flights, hotels, and more at a fixed rate. This may not always give you the best value, but you’re still saving money on travel and that’s all that matters.

Remember, the key is to find a credit card that aligns with your travel style and travel goals. Regardless of how you choose to redeem for travel, you’re still ahead of the game because you’re taking the next step and traveling more for less.

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What if you no longer want the credit card?

Once you’ve earned the welcome bonus and have had the credit card for a year it’s a good time to evaluate whether the benefits and perks alone are worth paying the credit card annual fee.

Here are some options to consider:

Important: You should wait at least a year before reaching out to the credit card company. If you’re using an app like Travel Freely, you will get a reminder when your next annual fee is about to hit your account.

Ask for a Retention Offer: One option is to reach out to the credit card customer service team (via phone or chat) and ask about a retention offer. Don’t say the words “retention offer” you don’t want to give away that you have no intention of canceling the credit card.

Let them know that you are considering canceling the card. Be prepared with reasons why you think the benefits are not worth the annual fee. You can ask them if they’ll waive the annual fee, but they may instead offer you bonus points, statement credits, or other perks to encourage you to keep the card open for another year. It’s worth a shot, especially if the card’s benefits still hold value for you.

Downgrade to a No Annual Fee Card: If there’s no possible way that they’ll waive the annual fee and you don’t want a retention offer, you can ask them to downgrade to a credit card within the same card family that doesn’t carry an annual fee. You should do some research to make sure this is a possibility before reaching out and making this request.

This allows you to maintain the credit line associated with the account while avoiding the annual fee. However, keep in mind that downgrading may come with changes in benefits or rewards structure, so assess whether the new card aligns with your needs and spending habits.

I’ve personally used this strategy and it has worked out well for me. In some cases after a certain time period, you may be eligible to earn the welcome bonus on the annual fee credit card again so downgrading can be an effective strategy.

Consider downgrading your credit card instead of canceling it, even if you don’t intend to use it often or even at all. You can keep a small recurring payment on the card to keep it active.

Personally, I’ve never had a credit card closed due to inactivity, even with several unused cards (all of my credit cards are with large banks). While my credit limit may decrease on unused or rarely used credit cards, it doesn’t worry me since I often increase it with new cards.

In fact, credit limit decreases on unused cards can benefit me in the long run. As long as I can keep the old credit history, I’m good.

Cancel the Card as a Last Resort: Canceling the card should generally be a last resort. Your credit score may dip temporarily but if you have good long standing credit, it will bounce back.

Remember, having a good mix of credit types can positively impact your credit score. Additionally, a good amount of available credit, when used responsibly, can also be beneficial for your credit score.

But if you’ve had the credit card for at least a year, and you have other older cards to keep up your credit history just make sure that any remaining points are secure.

If you have a co-branded credit card like with a hotel or airline then your points are safely within their system. But if you have a bank credit card, you’ll want to have a plan to transfer those points or use them before you cancel the credit card.

In any case, consider your unique circumstances and weigh the benefits, annual fee, and any potential retention offers or downgrade options available to you. By making an informed choice, you can navigate the situation effectively while maintaining a healthy credit profile.

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