All about annual fees

As someone who has paid annual fees for too long in the past because I was too scared to close the cards (turned out I just needed to downgrade them) I feel qualified to guide you here so you don’t have to repeat my mistakes.

A lot of us were raised with the idea that credit cards are something to keep away from and that annual fees are a waste of money. Nobody was telling us to open many cards and often, like I do. It’s a common concern that people wonder when to be done with the cards after they earned the sign up bonus.

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Tip #1 – Keep all cards open for at least 12 months

First of all the fine print on all the credit cards says if you close the card before 12 months, you could possibly have your points reclaimed by the bank. So take no action that first year.

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Tip #2 – To close or not to close the card?

When your annual fee comes up after that first year, you have a few options.

First, ask for a retention offer to keep you from closing the card. They might offer you say 10,000 points to keep it open. Keep the card if you feel you are continuing to get value from it making the annual fee or retention offer worth it.

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Tip #3 – Try to DownGrade the Card

You can downgrade some cards to a no annual fee card. This is my preferred option and how to protect your score from a ding from closing a card. This also allows you to keep that credit line and build your length of credit history. Note: business cards do not hurt your credit score when you close them after a year.

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Tip #4 – Closing the card

If neither of the above options apply to the card in question, and I am not getting any further value that justifies the annual fee, I will close the card after 12 months.

An example of this is my Southwest cards. You can earn the bonus 2 years after you last earned the bonus, but not if the card is still open. Since the main value I derive from holding the cards was the sign up bonus to get a Companion pass, I am ok closing them after the first year.

*Most banks are supposed to refund the annual fee to you if you close/downgrade within 30 days of the annual fee hitting. I’ve heard rumors of some banks even prorating the fee depending on when you close during the year, but that was from Reddit and not my personal experience.

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What makes annual fees worth it?

I can’t necessarily answer this question for you, but I’ll explain my decision making process.

Let’s look at the Capital One Venture X. This card has a $395 annual fee which sounds like a lot, but listen to this. $300 is immediately given back as travel credit, and I always use this for booking rental cards through Capital One Travel. So then my first year fee is really $95 but then all the years after, they give me the $300 credit plus 10,0000 anniversary points, basically nullifying my annual fee to $0.

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This is actually a card that I keep open year after year, because after the sign up bonus, the value it continues to give me lies in the ongoing benefits like airport lounge access and 2x points on every dollar spent.

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Most fees are worth the first year at least

I hope this helps you see how annual fees can bring lots of points travel into your life as well as perks from the specific cards .

-Stacy