December 4, 2023

Do These 2 Things if Your Credit Card Has an Annual Fee

Image source: Getty Images. While it doesn’t influence our opinions of products, we do receive…

Do These 2 Things if Your Credit Card Has an Annual Fee
FEES written on chalkboard above a young man's head.

Image source: Getty Images.

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When the annual fee on your credit card is coming up, you have a decision to make. Do you pay it? Or do you avoid it by either canceling or downgrading the credit card?

It can be tough to figure out which is the best way to go. On the one hand, you don’t want to shell out money for no reason, especially with so many no-annual-fee credit cards available. On the other, it wouldn’t make sense to give up a credit card that’s saving you a lot of money just because it has an annual fee.

This doesn’t need to be a long, complicated process. There are two things you should do to decide whether a credit card is worth keeping.

1. Calculate the credit card’s yearly value

To get the yearly value of a card, add up all its perks that you use. That includes the rewards you earn on all your purchases with it. Then, subtract the annual fee.

Here’s a tip to quickly find out how much you earn in rewards per year. Most credit cards include this information in a rewards summary you can access through your online account. If you have trouble finding it, call or message customer service for help.

Let’s say you have a travel credit card with a $150 annual fee. For that, you get the following benefits:

  • A $75 annual travel credit
  • 40,000 travel points you earn per year, a $400 value
  • Two airport lounge passes you value at $30 each, a $60 value

With $535 worth of benefits and a $150 annual fee, the card’s yearly value is $385.

Remember to only count features you find useful. After all, the point is to calculate how much the credit card is worth for you.

2. Check if there are better options available

Even if you’re happy with your card’s value, it’s always smart to see if you can find something better.

Since there are so many credit cards out there, you probably don’t want to go over all of them. It’s much easier when you narrow your options down to a few potential alternatives.

Start by deciding which type of credit card you want. This way, you can look at the best options in that category. If you have a cash back card, you could check out top cash back credit cards. If you’re interested in travel rewards, then you’d pull up the best travel credit cards.

Next, think about anything that isn’t working with your current credit card. Here are some typical examples:

  • You’re not using all your card’s benefits. Look for a credit card with a less expensive annual fee or benefits that fit your lifestyle better.
  • Your card doesn’t have all the features you want. Consider a more expensive credit card with more perks.
  • You’re not satisfied with the amount of rewards you’re earning. See if there’s a credit card that better fits your spending habits. That could be one with a higher flat rate on every purchase or bonus rewards in areas where you spend the most.

I recommend you go through these two steps for every credit card you have with an annual fee, once per year. It doesn’t take long, and it helps you confirm whether a card is right for you. First, you’ll find out whether you’re coming out ahead on the card’s annual fee. After that, you’ll see if there are any other cards or credit card companies that could do even better for you.