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Understanding Credit Card Annual Fees: Are They Worth It?

At O1ne Mortgage, we prioritize your financial education and well-being. In this article, we delve into the concept of credit card annual fees, their benefits, and how to manage them effectively. If you have any mortgage service needs, feel free to call us at 213-732-3074.

What Is an Annual Fee on a Credit Card?

A credit card’s annual fee is the cost you pay simply to have the credit card. Many credit cards don’t have annual fees, but when they do, it’s often because the card comes with numerous cardholder benefits, protections, and rewards. The fee helps the card issuer offset these costs or even make money from cardholders who don’t use all the card’s features.

Types of Credit Cards with Annual Fees

There are also subprime credit cards that charge annual fees. Subprime cards don’t require a good credit score and may be one of the few options for people who are new to credit or rebuilding their credit. These cards usually don’t offer many benefits, and cardholders might close the card once their credit is good enough to qualify for a better card.

When Do You Pay an Annual Fee on a Credit Card?

You usually pay the annual fee when you first open your credit card, and the fee gets added to the card’s balance. It could lower your available credit at the start and be part of your first bill. Even if you don’t use the card for anything right away, make sure you make your minimum payment on time to avoid late payment fees and hurting your credit.

You’ll have to pay the annual fee again on your cardholder anniversary—12 months later—and may want to consider whether keeping the card still makes sense, especially if the annual fee has increased since you first got the card.

Are Credit Card Annual Fees Worth It?

Annual fees might be worth it if the card’s benefits are worth more to you than the fee. Here are some scenarios where an annual fee might be justified:

Statement Credits

Some cards will give you statement credits for certain purchases, such as travel, a TSA PreCheck membership, dining at specific restaurants, or rideshare services. If you plan on making those purchases anyway, the statement credits will offset the cost and help justify the fee.

Cardholder Benefits

Credit cards may also offer cardholder benefits that you value but can’t put a specific price on. For instance, if you travel a lot, you might enjoy having access to airport lounges, boarding your plane early, or checking your bag for free. An airline credit card that offers all these benefits could be well worth the annual fee.

When Annual Fees Aren’t Worth It

Annual fees generally aren’t worth it if the card doesn’t offer many extra perks, or if you can get the same benefits from a different card that has a lower or no fee. You also don’t typically have to pay an annual fee to get a secured card or an unsecured subprime card if you’re new to credit or building your credit. There are many options available, including cards with rewards and other benefits.

How to Get a Credit Card Annual Fee Waived

If you’re reaching the anniversary on one of your credit cards that has an annual fee, you could try to call the card issuer to see if they have any retention offers. Sometimes, the card issuer might offer to waive the fee, give you bonus rewards, or give you a statement credit. You might receive the offer simply for keeping the card open, or if you meet a certain spending requirement—similar to the welcome bonus when you open a new card.

If you don’t get the fee waived or offset, and you don’t think the fee is worth it, consider canceling the card or try downgrading to a card without an annual fee.

Find Your Next Credit Card

When you’re looking for a new credit card, you might not want to immediately disregard credit cards that have an annual fee. But you also shouldn’t assume that a card will offer better rewards or benefits just because it charges you a fee. You can search through some of the top credit cards and organize the results based on what features you want, such as rewards or a low credit score requirement. Compare the results to see which gives you the best bang for your buck.

At O1ne Mortgage, we are committed to helping you make informed financial decisions. If you have any mortgage service needs, don’t hesitate to call us at 213-732-3074. Our team of experts is here to assist you every step of the way.

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