Annual Fees: 3 Reasons Why They Don't Matter

One of first tips my dad has ever given me about credit cards was to watch out for annual fees. Stay away from them. That's how they get you. Why are their services so damn special? There are plenty of cards out there who won't charge you. Annual fees? Nice try, card company. Forget them. Move on.

Yeah... about that piece of advice...

I've applied to cards with annual fees of $69, $79 and $100 without batting an eye, and I have a three good reasons why I don't let annual fees scare or stop me.

Reason 1: You can cancel the card before the annual fee is charged.

I haven't seen any card that demands that you keep it for a year (though, some do exist). The most common requirement in earning a sign-up bonus is completing a minimum spend.

Let's say the requirement is that you have to spend $3,000 in three months, and you complete it with a few days to spare. If you don't want to worry about the card anymore, just call in to cancel.

I've canceled three cards this way.

Some notes:

• ALWAYS read the terms and conditions. You know... the long list of words followed by the "I agree" button.
• Closing credit card accounts WILL impact your credit score. I was not adversely affected by this and my credit score bounced back in a few months. (Just in time for me to apply to another card.)
• Do NOT close your oldest account.
• Do NOT close a card with a large credit limit since it will impact your credit utilization.
• Some cards and points/miles are linked. Close the card and you lose all the points.
• For more details, visit www.creditkarma.com or our Credit Basics page.

 

Reason 2: The larger the sign up bonus, the less the annual fee matters.

I have never applied to any airline card that offers a mileage/point bonus of anything less than 50,000. While it depends on the program, 50,000 points is usually enough for several domestic flights or one international roundtrip ticket.

So if you did end up paying the $99 annual fee, so what? That $99 you just spent practically paid for most of your roundtrip airfare (not including taxes) to Taipei or London or Sydney.

Some notes:

• You might actually want to keep certain cards. I intend to keep my Chase Sapphire ($99 annual fee) because I get 2x points on travel and dining. And as my weight suggests, I eat out a lot. In other words, know and understand which cards fit your lifestyle: free car rental insurance, no foreign transaction fees, etc...
• Also, don't feel that you should ONLY sign up for bonuses that are greater than 50,000 points. 25,000 SPG (Starwood Preferred Guest) points offers great spending flexibility for hotels.

 

Reason 3: Annual fees are negotiable.

Let's say you're on the fence about canceling a card and the card's anniversary—and annual fee—is coming up. It doesn't hurt to call the card company (using the number on the back of the card) and ask if they're willing to waive the annual fee. But only do this if you're willing to actually cancel the card or sound like chump by saying, "Oh... uh... nevermind. Thanks," and hanging up.

I was debating about my Southwest Premier card recently. I was debating if I should cancel or not. On one hand, Southwest offers a 6,000 point bonus each year you have the card. On the other hand, the annual fee was $99.

I decided to call in and ask if they were willing to waive the fee. No, they would not waive the fee, but they did offer an additional 3,000 point bonus (on top of the 6,000 anniversary bonus) if I stuck around for another year (and paying the $99).

I'll take it!

Some notes:

• I'll probably cancel after I get my bonuses. 

 

See? Annual fees aren't too bad.

Sorry, Dad. But I swear that was the only tip you've given me that I've ignored. If it's any consolation, it's not like I ignore everything else you've said, like don't procrastinate, always be on time or don't drive in the carpool lane by myself.

Oh wait.