Should You Get a Credit Card With an Annual Fee?

Credit cards are more commonly including an annual fee with their credit cards, now that they’re limited on the amount of interest and late fees they can charge. Before you apply for a credit card with an annual fee, weigh the pros and cons of paying the fee. You might find that having that particular credit card isn’t worth the extra cost.

The Downside of Annual Fees

The bad thing about paying an annual fee is the opportunity cost of doing something else with that money. However, you may be able to justify accepting a credit card offer that has a $20 annual fee versus one that has a $100 annual fee.

Another problem with annual fees is that you have to pay the fee whether you use the credit card or not. So you could end up paying the fee and receiving absolutely nothing in exchange for your money.

What’s the Benefit?

There are several credit cards that don’t have an annual fee. So if you decide to apply for a credit card that does have an annual fee, there should be a benefit. You’ll often find annual fees on rewards credit cards. It could be a good trade-off, if the rewards outweigh the annual fee.

Remember, the amount of rewards you receive is often tied to your credit card usage. If you don’t use your credit card much, you probably won’t accumulate enough rewards to offset the annual fee.

Can You Avoid the Fee?

Some credit cards charge an annual fee that’s contingent upon something you do. The annual fee can’t be tied to your inactivity, but credit card companies can base the annual fee on your activity. For example, the credit card you’re considering may waive the annual fee if you spend a minimum amount on your credit card within a year. You’ll have to read through the credit card disclosure to figure out whether the credit card has a stipulation like this, but it’s worth the time for a credit card you like.

You might apply for the credit card anyway and try to use your good credit history and positive payment habits to negotiate your way out of the fee. Of course, getting the fee waived is up to the discretion of the credit card issuer and its customer service representatives, so you may ultimately have to pay the annual fee.

Pay in Full Each Month to Reduce Costs

You also need to pay your credit card in full each month to minimize the total credit card cost. When you carry a balance from one month to another, you’ll incur interest charges. Coupled with an annual fee, finance charges make your credit card more expensive. It also becomes more difficult to accumulate enough benefits to offset the cost of having the credit card. If you plan on carrying a balance on the credit card, definitely make sure you get one that doesn’t have an annual fee.

Unless you’re getting a great rewards credit card or you have bad credit and fewer options, paying an annual fee usually isn’t worth it. Keep looking until you find a credit card you like that doesn’t have the extra cost.