When credit card annual fees are too high for your budget

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

Get to the Points

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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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Updated: 04-26-2018