We typically have a natural aversion to additional costs, such as fees. While this approach often proves beneficial, there are circumstances when paying fees may be the more practical choice. The crucial factor is discerning when to entertain the idea of fees and when to dismiss them, seeking other alternatives. This logic also applies to credit cards. Despite the instinctual reluctance of many consumers towards credit cards that impose fees, there can be instances where the value derived from the credit card surpasses the drawbacks of the fees. This piece aims to provide essential insights on credit cards with fees to assist you in identifying which ones suit your needs best.
Understanding Fee-Based Credit Cards
First, all credit cards have some fees. You may need to read the small print to find them, but your credit card statement will highlight them in bold. These fees include the following:
- Over-the-limit fees
- Late payment fees
- Cash advance fees
- Balance transfer fees
- Foreign transaction fees
- Returned payment fees
- Annual fees
These fees are all in addition to standard interest charges based on the outstanding account balance. However, when most people discuss fee-based cards, they are talking about annual fees, which are ultimately fees charged simply for the privilege of having the credit account available to you.
Some cards claim to charge annual fees in exchange for better rewards or lower interest rates. Regardless, it is a good idea to crunch some numbers to determine if the annual fee card's benefits are worth the additional fees for how you plan to use the credit card. In other words, are you willing to pay the price of admission every year to have that particular fee-based credit card?
Comparing Rewards and Benefits
Benefits and rewards credit cards are usually fee-based, though a few exceptions exist. Most rewards card companies that require annual fees claim that their rewards or points system is superior or more generous than the same system for those who do not have annual fees. The bottom line is that you need to look at the potential benefits of having a fee-based card compared to similar cards that do not charge annual fees. Then you'll need to determine if you will pay the fees to enjoy the benefits.
Be honest in the comparisons to ensure you're making "apples to apples" comparisons rather than comparing apples to oranges. That involves including introductory offers (and the likelihood that you will make the qualifying purchases to trigger the awards and offers) and other vital details about the fee-based card, such as interest rates, other fees, grace periods, introductory offers, bonuses, and the value of the rewards themselves. For instance, some companies offer one percent cash back without an annual fee. In comparison, those with annual fees may offer two percent as a standard cashback percentage while offering as much as three percent on certain purchases (gas, groceries, restaurants, etc.). It could be a boon if your spending aligns with the bonus miles or points.
Assessing the Value of Fee-Based Cards
Of course, the ultimate goal when using fee-based cards is to ensure that you do not end up paying more for the privilege of membership than you're getting back in potential rewards. While the introductory offers may provide ample temptation, you must remember that the annual fees last for years beyond that bonus point offer. The most important thing is to keep the long-term in mind when comparing offers to ensure you're not paying more for the card than the card is worth when choosing fee-based credit cards.
Potential Dividends and Risks
There are many potential dividends and risks when getting fee-based credit cards. Potential dividends include rewards, lower interest rates, and outstanding introductory offers. That is especially true for cards that offer special promotions for balance transfers that may allow you to pay off debt at a considerably lower interest rate. The risks, though, are that you're using a credit card whose annual fees are locked in and which may outlast the rewards received from having the card by far.
Choosing the Right Card
It always comes down to columns of risks and rewards. You don't necessarily need to consider the column that is longer. However, you need to choose the column that most closely aligns with your spending patterns and overall goals for a particular credit card. If you're planning a trip, then a fee-based credit card gives you the bonus you need to earn the airline or hotel accommodations for that trip. Remember, the annual fees will continue long after your upcoming trip is a memory, so choose wisely. Another card may help you accomplish the same goals, although it may take longer. The right card is the one that helps you meet your goals at the right time for your needs.