When credit card annual fees are too high for your budget

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Personal Finance Writer
Summer Hull writes the weekly “Get to the Points” column for CreditCards.com

Get to the Points

The content on this page is accurate as of the posting date. Please see the bank’s website for the most current version of card offers.

In
the past few years, the quality and quantity of perks that come with rewards credit
cards have vastly improved.

My
rewards credit cards get my family into amazing airport lounges around the world,
waive various airline fees, give us hundreds of dollars in annual travel
credits, offer instant elite status, provide money back when something we
bought goes on sale, provide complimentary insurance on car rentals, and, of
course, put lots of valuable miles and points in our accounts. Like everything,
these valuable perks ultimately come at a cost, and that cost is often in the
form of an annual fee.

But
what happens when the annual fees you are paying for your rewards credit cards
are simply too high for your budget?

Not all credit card
annual fees are bad

Credit
card annual fees are not inherently bad as the value you receive can often be
offset by the perks you get in return.

For
example, the IHG credit card costs $49 a year, but in return you get a free
night you can use somewhere such as the Kimpton Seafire Resort in Grand Cayman
that costs over $500 per night!

First,
know that you are already ahead of the game by thinking through whether the
annual fees charged by your credit cards are worth it. The real danger of annual
fees exists for those who do not pay attention to what they are paying year
after year, and who don’t think critically about whether the card
continues to be worth the cost. In my mind, every single rewards credit card in
my wallet “auditions” every year for its continued spot in my line-up.

Do the math on your
annual fees

With
popular rewards credit cards charging annual fees anywhere from $49 up to $550 every single year, depending on how many
cards you’re carrying, it makes sense to do a careful review if you need to rein in expenses.

The
best place to start is by doing the math to put a realistic value to the unique
perks, benefits and awards that each card provides in a given year.

Then,
compare the conservative value of those perks to the annual fee. If the perks
aren’t worth the fee, either because you aren’t using them, they are duplicated
on another card or simply aren’t all that valuable, then it is an easy decision
to say goodbye and cancel the card.

Call your bank and see
if a retention offer is available

It
gets tougher to know what to do when you would like to keep the card because
the benefits really are valuable, but the fee is just higher than your budget
can permit.

Before
you cancel, I highly recommend picking up the phone and calling the number listed
on the back of the card. Explain that you are considering closing the card
because of the annual fee, but that you would like to explore if there are any
offers available to your account that may help offset it.

Sometimes
the answer will be no, and you can then decide to either pay the fee or close
the card
. However, sometimes the banks really do want to keep you as a customer
and will offer you a statement credit or bonus points to keep the card open.
This is most likely to happen if you frequently use the card and don’t ask for
this type of “retention bonus” on a regular basis.

Inquire about no-annual-fee
versions of your card

Another
option when you want to keep a card, but can’t afford the annual fee is to see
if there might be a no-annual-fee version of the card available. The no-annual-fee
card probably won’t have all the same perks, but it might be enough to keep
your points alive and still get some level of built-in protections and
benefits.

For
example, my father got the very popular Chase Sapphire Reserve in early 2017
when it was still offering a massive 100,000-point welcome bonus. He earned
those points, used the $300 annual travel credit and enjoyed his first 12
months with the card.

However,
he is a retired budget traveler who simply didn’t desire a card that charges a
$450 annual fee in his wallet on a permanent basis. When he received notice that
his second $450 annual fee was coming due, he called Chase and inquired about
downgrading his account to one with no annual fee. They allowed him to switch
to the no-annual-fee Chase Freedom Unlimited.

By
downgrading instead of closing his account, the few Chase Ultimate Rewards points he
had left are safe, he still has some travel protections and the Freedom
Unlimited card is actually pretty great on the earning side at 1.5x points per
dollar spent.

Of
course, the Freedom Unlimited does not have all the great features of the
Reserve, but it fits his needs and budget better going forward. Many rewards cards
with annual fees actually have a no-annual-fee alternative available if you
ask.

It
can be a little sad to lose a card or perk you’ve grown used to, but there are
always new and exciting rewards card products right around the corner. It makes
sense to cut the cards with big annual fees that are no longer meeting your
needs or allowing you to stay within your budget.

See related: How I canceled one of my Chase cards and saved my score, 5 least expensive airline rewards redemptions





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