How To ‘Erase’ Credit Card Annual Fees
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According to a Federal Trade Commission report, annual fees on credit cards have been increasing steadily over the years. The average annual fee in 2020 was $94 per card, according to the FTC report.
Higher fees might be more and more difficult for some cardholders to justify. But despite the upward trend in annual fees, many credit cards come with some excellent perks. In fact, credit cards can have such lucrative benefits that an annual fee might be worth it.
You might wonder how credit cards can possibly offer benefits that are potentially more valuable than the annual fee. It’s a fair question, but the answer is straightforward.
Credit cards primarily make their money from interest charges to cardholders. By offering attractive sign-up bonuses and other benefits, credit card issuers can attract new customers who might end up paying more interest charges than the value of any benefits the card offers.
Thus, in order to “erase” your credit card’s annual fees, it’s important to completely repay your balances every month and not carry them over. In that context, we’ll take a look at how you can use credit card benefits to offset annual partly or even entirely.
Lucrative Sign-Up Bonuses
One of the best ways to erase your credit card’s annual fee is with sign-up bonuses. Typically, more valuable signup bonuses are paired with high annual fee credit cards. “Credit cards with the best features and rewards typically impose annual fees on cardholders. In many cases, these benefits can offset the cost of the fees,” says Nirit Rubenstein, co-founder & CEO at Dovly.
Rubenstein continued, adding that you should work the numbers to see if the fee is worth it. “Before jumping on an offer, make sure to do the math, considering how much you’ll spend and how many rewards you’ll capture over the course of the year, and then weigh those benefits against the annual cost.”
Sign-up bonuses also require cardholders to spend a certain amount within a given timeframe, such as $500 in the first three months. The amount of time varies, as does the spending requirement; some cards require you to spend several thousand dollars. Thus, you will have to ensure you can meet the spending requirement to take advantage of the bonus.
Ongoing Perks
In addition to sign-up bonuses, credit cards offer perks that continue as long as you keep using them. If sign-up bonuses are what tempt people to sign up for credit cards, ongoing perks are what keep them onboard.
Different credit cards have different kinds of perks, so you should look for ones that best fit your preferences and spending habits. For example, some credit cards are ideal for travelers, says Lyle Solomon, bankruptcy attorney at Oak View Law Group. “For example, if you travel often, many cards include travel protection and offer supplemental insurance for rental cars. As anyone who travels knows, the insurance costs can add up. Even less than a week per year with a rental car can more than pay for many annual fees.”
Pre-Pay Purchases and Bills
Is there a credit card that has all of the benefits you want, but the sign-up bonus spend is high for your spending habits? If so, one option is to pre-pay purchases. For instance, some rewards hackers use their new credit cards to pay for things like utilities, cable, and internet bills for the next six months.
Of course, this only works if you pay a flat rate, which isn’t always the case for utilities. Nevertheless, you can ask your various service providers if pre-paying is an option for those flat-rate charges.
If that won’t quite allow you to reach your minimum spend amount, you might also be able to pay your bills with your credit card. That includes car insurance, car payments, and even rent. In some cases, paying with a credit card isn’t permitted, but there are third-party services that allow you to pay for a fee. The fee can be significant but might still be worth it if the sign-up bonus is lucrative enough and you are having trouble meeting your minimum spend.
Benefits for Travelers
The COVID-19 pandemic brought travel to a screeching halt in many cases. But people are starting to travel again at nearly the levels they did before the pandemic. If you are in that category, a travel credit card can quickly become more valuable than its fee.
“The American Express Platinum card is usually considered quite expensive at $695 [a] year. While the benefits of the card are slanted toward people that travel, you can quickly cover the cost of this card with the credits offered,” says Faron Daugs, founder and CEO at Harrison Wallace Financial Group.
Daugs noted several perks of the Platinum card that on their own can pay for the annual fee. These include an up to $200 per year airline bag credit, $200 per year in hotel credits (with a 2-night minimum stay), $240 per year in digital entertainment credits (up to $20 a month), and $200 per year Uber credit.
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