Credit cards are the preferred payment tools for many as they not just make our transactions more convenient but also work as a short-term income replacement and more significantly, incentivize our spends with a wide range of rewards and benefits. However, these are sophisticated tools that must be used smartly and responsibly to reap maximum rewards while ensuring we pay our dues in full within the interest-free period to avoid any interest penalties. As such, knowledge about various credit card charges becomes important.
In this article, we delve deep into one of the crucial types of credit card charges – the annual fee.
What Is A Credit Card Annual Fee?
An annual fee is the amount that credit card issuers charge at the time of card activation and once a year after that to primarily keep your card account active. While many cards involve an annual fee, there’s no dearth of “zero annual fees” cards too. Also, many cards waive off the annual fee for the subsequent year if the user meets a pre-defined yearly spending target.
So, should you opt for a credit card that charges an annual fee?
Well, by the look of it, it might always appear a better idea to go for a particular credit card that doesn’t charge an annual fee. And it’s perfectly fine if you think so. However, it remains a fact that many cards that do charge a fee come with a better rewards programme. Moreover, at times there are special benefits or accelerated reward points to be earned on paying the annual fee.
How To Decide Which Card Option Works Better For You?
Well, the annual fee is an important consideration while choosing a credit card. However, it shouldn’t ideally be the only consideration. The first search criterion should be the credit cards you’re eligible for.
The second consideration should be cards that are best aligned with your unique spending patterns. For example, if you’re someone who uses a credit card mainly for grocery purchases, you should ideally go for a card that comes with cashback or extra reward points on groceries. On the other hand, if you’re a heavy online spender, it might be a better idea to go for a card that incentivizes your online spends with extra discounts or reward points. If you’re a frequent flyer, a travel credit card that offers air miles, complimentary travel insurance and free lounge accesses might be your go-to option.
Once you’ve shortlisted a few cards that are aligned with your eligibility and spending pattern, you need to see which among them gives you the best rewards within your budget for card spends. This is very important as if you’re unable to clear your dues in full on time, you’ll have to pay interest charges and late penalties.
After filtering your options through all these criteria, let’s suppose you’re left with just two options: a card which doesn’t charge any annual fee and a card that comes with an annual fee. So, going for the first option should be a no-brainer, right? Well, not necessarily.
Understanding The Extra Benefits Of Paying The Annual Fee
Before you eliminate the option that charges an annual fee, you should ideally check if you’re getting something worthwhile in return for paying it. If so, you should try to figure the value of these extra benefits and how much are they of use to you. For example, if paying an annual fee of Rs. 2,000 gives you 10,000 bonus air miles that can be redeemed for travel benefits worth Rs. 5,000, especially if you consider you will have to spend Rs. 1 lakh on your card to earn as many air miles, it isn’t a bad deal, right?
Or say you are a heavy online shopper and you see a card that charges Rs. 500 annual fee but you could save Rs. 10,000 in a year through its cashback programme on your preferred e-commerce sites versus a card that doesn’t charge annual fees but gives no benefits on online purchases. In this case, going with the first option could be more beneficial despite the annual fee.
On the other hand, if an annual fee-charging card doesn’t give anything worthwhile in return, or the extra benefits offered make no sense to you, or if you feel the fee is too steep, you should consider going for a zero annual fee variant. That being said, if you are a first-time credit card user, you might want to opt for a card which does not carry an annual fee.
What To Do If You’re Using A Card That Already Charges An Annual Fee?
If you’re already using such a card but paying the annual fee seems difficult because of changes in your income pattern or if you feel you are not getting anything worthwhile in return, you may explore a few options with a bit of caution. Firstly, you can reach out to your bank and discuss any possibility of a fee waiver. You can also check whether you could be issued a card variant that doesn’t charge an annual fee and doing so will not have any bearing on your credit score. Do keep in mind that closing a credit card account is likely to impact your credit score. That said, it will be worthwhile to re-emphasize many cards automatically waive off the annual fee if the user meets a predefined spending target. If that target is within your budget, you have no reason to worry about the annual fee.
I hope these tips will go a long way to help you make informed decisions when it comes to credit card annual fees.
Source: sea.operanewsapp.com
