How to assess the benefits of premium credit cards with annual fees
Using rewards credit cards can enhance the value of your daily expenses, often providing a range of travel and lifestyle benefits. However, many top-tier credit cards come with annual fees that can reach into the hundreds of dollars.
So, when does paying a credit card's annual fee make sense? It comes down to whether the benefits you receive from the card outweigh the yearly cost. Nonetheless, it's essential to conduct thorough research and compare multiple credit card options to find the optimal balance between cost and benefits.
Leverage travel and hotel benefits
While you might typically avoid fees, a credit card's annual fee can be justified if the card's benefits exceed its cost. Instead of solely focusing on rewards rates, prioritize evaluating the overall perks a card offers. Many no-annual-fee credit cards provide exceptional rewards as well.
Take, for example, the Capital One Venture X Rewards Credit Card, which carries a substantial $395 annual fee. However, it includes a $300 annual travel credit redeemable through Capital One Travel and provides 10,000 bonus miles each year (equivalent to $100 in travel) starting from your first anniversary.
Even if you don't travel frequently, it's not difficult to offset the annual fee each year, especially when you consider the card's additional premium perks, such as complimentary access to airport lounges.
For travelers, hotel credit cards can also be a smart choice due to the complimentary annual night benefit they offer. With the IHG One Rewards Premier Credit Card, you receive an annual free night valued at 40,000 points. Depending on how you use this benefit, it can provide significantly more value than the card's $99 annual fee.
Additional benefits of this card include a $100 statement credit, 10,000 bonus points upon spending $20,000 each calendar year, a fourth night free on award stays lasting four nights or more, and Platinum Elite status.
Consider benefits to subscriptions and other services
One common subscription service offered by premium credit cards is subscriptions to entertainment or lifestyle services. This can include access to streaming platforms, discounts on event tickets, or exclusive invitations to special events. These perks cater to cardholders who enjoy entertainment and leisure activities, providing added value beyond traditional rewards programs.
For example, the American Express Platinum card provides cardholders with complimentary memberships and credits for various subscription services. It includes up to $200 in Uber credits annually, access to the Global Lounge Collection (including Centurion Lounges and Priority Pass lounges), and complimentary memberships with programs like Fine Hotels & Resorts and The Hotel Collection.
The Chase Sapphire Reserve offers a complimentary Priority Pass Select membership, providing access to over 1,300 airport lounges worldwide. Cardholders also receive up to $300 in travel credits annually, which can be used for various travel expenses, including flights, hotels, and car rentals; and complimentary subscriptions for Instacart and DoorDash
Avoid annual fees on credit cards for poor credit
Traditionally, credit cards with annual fees have been associated with rewards and benefits, but there's a growing category of credit cards that charge an annual fee primarily to help people build credit.
However, in recent years, the market has seen a rise in unsecured starter credit cards and credit cards tailored for individuals with poor credit that do not require an annual fee. For example, the Chase Freedom Rise credit card considers applicants who maintain a Chase checking account with a balance of $250 or more, making it accessible to those new to credit.
Similarly, fintech company Petal utilizes its proprietary Cash Score, which incorporates income and expense data alongside credit scores, to assess eligibility. These innovative card options provide more opportunities for responsible money managers with less-than-perfect credit histories to access credit and improve their financial standing.
The bottom line
While credit cards with annual fees may initially seem like an extra expense, they often provide access to subscriptions and services that can significantly enhance the cardholder's lifestyle and travel experiences.
For people who frequently travel or enjoy exclusive perks and services, these cards can be a worthwhile investment, offering convenience, comfort, and additional value beyond the basic rewards structure. When choosing a credit card, it's essential to consider your spending habits, travel preferences, and lifestyle to determine which card will provide the most value based on the included subscriptions and services.
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