RETHINK THE COST OF ANNUAL FEES
The biggest months for adding and dropping credit cards are December and January, so now’s the time to make sure that $95 annual fee is really worth it. Chances are, it’s not. “Generally, for the average credit card holder, it is not likely they are going to use a card with a high annual fee enough to justify it,” said Matt Schulz, a credit card expert with Creditcards.com, which is owned by Bankrate.com.
Banks raked in $90.3 billion in credit card fees in 2014, according to Bankrate, and additional fee hikes last year by some companies mean that number is only going to grow. American Express raised the fee on its popular Premier Reward Gold Card and its co-branded credit card with Starwood Hotels from $65 to $95 last year, for example.
Schulz says banks are lowering interest rates they are charging on cardholders who carry a balance but are raising annual fees to help generate income.
Here are some things to consider as you think about what cards to keep.
Why pay an annual fee at all? Maybe because you have no choice: Some cards aimed at people with poor credit carry fees because these customers are considered high-risk.
But often cards with annual fees come with some kind of benefit that the user thinks is a good deal. There are dozens of cards that allow users to earn frequent flier miles or points toward a free hotel stay.
If you must pay, make sure it’s worth it. Calculating the value of some credit card benefits, like ones that let you check a bag free on an airline, is straightforward. If you fly United and check a bag— $25 a pop, usually — more than four times a year, you have more than justified the $95 annual fee on Chase’s United Visa card.
You’re better off without one. Nearly all rewards credit cards require a large amount of a particular type of spending to justify the fee. If you’re not doing that, then you’re wasting money.
The best bet, usually, is a cashback card with no annual fee. You won’t be tempted to buy stuff that looks like a bargain if you buy it with points, but it may be stuff you don’t need. Getting cash back gives you the power to do what’s best with your money — like pay off any credit card balances as soon as possible.
If all else fails, threaten to walk. The credit card industry is extremely competitive. Banks don’t want to lose your business.
Annual fees can be negotiated, Schulz said. While not every company will waive the entire fee, sometimes the company will reduce the fee or throw in an extra benefit, like a bundle of points, if a customer threatens to leave.