Credit Card Annual Fee Explained

Credit card providers charge an annual fee to keep the card account open. Credit cards with annual fees boast better benefits and high rewards rates. However, all credit cards do not have this fee. But as we know, the best things are not often free. Therefore, the higher the credit card annual fee, the greater its benefits. You might think, is it worth paying an annual fee for a credit card or how to avoid it? In this article, we look at the detailed information related to the credit card annual fee. Let's start.

What is a Credit Card Annual Fee?

The annual fee is the common type of credit card fee. You have to pay it once a year in your anniversary month to remain a cardholder. The annual price of a card can be low as $50 and high as $550 or more. Moreover, yearly fees are not like interest payments on your account. Therefore, you need to pay it whether you have a balance on your card or not. Some credit card providers divide the fee into monthly instalments, but they charge once a year.

The benefits and rewards of the card justify the annual fee cost. For example, some cards offer rewards that are worth more than the annual paying fee, such as airport lounge access, elevated reward rates and prolonged warranty protections. If you use these rewards and benefits well, this annual fee will cost you nothing.

Which credit cards charge an annual fee?

All credit cards do not charge an annual fee. Credit cards that have an annual fee provide extra advantages. Here are some cards that commonly have yearly fees.

1. Rewards credit cards
2. Secured credit cards
3. Premium credit cards

When making a card purchase, you should ensure that the benefits of a credit card exceed the cost of annual fees. If you're getting a rewards credit card, your earned rewards should exceed the amount of the annual fee of that card. Otherwise, it'll cost you money. Also, the terms and policies of the annual fee vary from card to card. So, it is essential to know from your card issuer how it works. In addition, you should review the rates and fees before making a purchase.

How to avoid annual fees on a credit card?

If you want to avoid a credit card annual fee with a guarantee that you will not have to pay the fee afterwards, you should opt for a card with no annual fee. In addition, many people find it worthless to pay the cost after using the card for the first year. If you're one of them, you can close the account after evaluating the following significant things.

• If you have any accumulated rewards, reclaim them.
• Assess the effect of the annual fee on your credit score.
• Check out if it's possible to switch to a card with no annual fee from the same issuer.

Cancelling a card can impact the types of credits and the standard age of opened accounts. Both these factors affect credit score. While switching to a no-fee credit card won't damage your credit score. However, it will prevent you from earning elevated rewards &'' benefits that you'd expect to see on a credit card with the annual fee.

When should you decide to pay the credit card annual fee?

Here are specific reasons why the annual fee is worth paying, and you should choose the credit card with the yearly fee.

1. The card offers generous signup bonuses that justify the annual fee

Many credit card issuers provide exceptional rewards for opening an account with them. Typically, these rewards include enough frequent flyer miles to get you to your desired destination. Moreover, a large amount of statement credit or points you can exchange for travel expenses or gift cards is also included in signup incentives.

2. The card offers valuable constant travel perks

If you travel a lot for personal or business purposes, it is best to go for an annual fee credit card with ongoing travel benefits. It includes free hotel stays, membership in the hotel, access to the airport lounge and more. These endless travel perks are more worth the annual fee.

3. If you have a bad credit history

Individuals with low credit scores cannot get the card with no annual fee. So, if you have a bad credit history, you may need to get a card with a fee. Opening a new card will positively affect your credit history and show that you are financially responsible.

4. Everyday spending rewards worth more than the cost of the annual fee (Cards with higher cashback percentage)

Lastly, many credit cards offer little cashback on purchases monthly. You can easily find the card that offers 1% cashback on all purchases. But, the card with an annual fee provides greater cashback and allows you to get a solid amount of money back on necessary purchases.

The bottom line

A credit card with an annual fee seems a little terrifying at first. But, it's a great idea to get a card with an annual fee to enjoy a set of card features and perks. If you make good use of its rewards, it can be a savvy choice and add a lot of value to your spending. So, get the card according to your lifestyle and daily habits. Before you sign up for any card with an annual fee, check the terms &'' conditions and calculate whether your rewards exceed the cost of the annual fee and whether the card offers net benefits.

Do you know any other perks of getting a credit card with an annual fee? Or do you want any help regarding the credit card annual fee? Let us know in the comment section below. We'd love to help you.