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I Used to Hate Annual-Fee Credit Cards — Here’s Why I Was Wrong

Now that I've had a change of heart, I've earned thousands of dollars in rewards.

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Many people learn about the importance of their credit after making mistakes and rebuilding. My story is different. I was 20 years old when I started working in the credit intervention department at a local mortgage company. My job involved helping people who didn’t qualify for a mortgage learn how to improve their credit situations.

By showing people how to bounce back from credit problems, I quickly learned just how influential credit reports and scores were over our financial lives. I was scared straight, so to speak, before I ever had a chance to make any big credit mistakes of my own.

As someone who learned early how to earn good credit, I had a strong opinion about credit cards with annual fees. I didn’t feel like I needed to waste money on annual fees when I had excellent credit and could qualify for credit cards without them. It turns out, I was looking at things all wrong.

Why I Didn’t Like Annual Fees

For years, I avoided annual-fee credit cards altogether. I did not, however, avoid credit cards themselves.

I understood that:

  • Well-managed credit cards can potentially help you earn good credit scores.
  • Credit cards offer better fraud protections than cash or debit cards.
  • I like free stuff and credit cards gave me the chance to earn rewards and cash back.

Yet even though I liked earning valuable credit card rewards, I worried that annual fees were a potential waste of money. Sure, certain credit cards gave you the chance to earn more value in rewards than the cost of their fees, but it felt like a lot to keep up with. I thought I was too busy to manage the process correctly. And I didn’t want to keep track of points to ensure I was getting enough value from the card. In hindsight, my misguided opinion cheated me out of some pretty great opportunities over the years.

Why I Changed My Mind About Annual Fees

Eventually, I met other credit and financial experts who had very different opinions than me when it came to credit cards with annual fees. These weren’t out-of-control credit card churners, but people I respected who took advantage of lucrative credit cards rewards, like free vacations, while still maintaining great credit.

Eventually, my husband and I decided to open a credit card with an annual fee — the Southwest Rapid Rewards® Priority Credit Card. Actually, we opened two annual-fee credit cards (one in each of our names).

The $149 annual fees for each card were well worth the value we got in exchange. Shortly after opening the accounts, we each met the $4,000 spending requirement (courtesy of an HVAC unit that needed to be replaced in our home) and earned our sign-up bonuses*:

  • 30,000 Southwest Rapid Rewards Points Each
  • Free Companion Pass (Per Card) for the Remainder of 2019

*At the time, the Southwest Rapid Rewards Priority Card offered 30,000 bonus points for new cardmembers. However, limited-time offers change frequently. 

We then used our sign-up bonuses to score four almost-free roundtrip flights from Charlotte to Houston, where we caught a cruise out of the Port of Galveston. The four flights would have cost more than $1,700, but we only paid around $10 each for taxes.

In the end, we swapped out $298 in annual fees for a little over $1,700 in flights. That’s an extra $1,402 in value, and a pretty great deal in my book.

By comparison, if I’d paid for our $8,000 HVAC unit replacement with my 2% cash back rewards card, I would have only gotten $160 cash back. My previous no-annual-fee philosophy would have cheated me out of an extra $1,242 in value.

Our two Southwest Rapid Rewards Priority Cards were just the beginning. Now that I’ve embraced the rewards I can earn on credit cards with annual fees, I have a few new cards in my wallet. Here are my favorites:

  • Chase Sapphire Reserve®: I opened my Chase Sapphire Reserve largely because of its generous sign-up bonus. (The current bonus is worth 50,000 Chase Ultimate Reward points after $4,000 in purchases during the first three months after account opening). I still use the card frequently because it lets me earn 3X points on travel and dining purchases. Add on the travel protection benefits and the $300 annual travel credit, and it’s easy to see why the Chase Sapphire Reserve is one of my favorite cards, despite its $550 annual fee.
  • Chase Freedom® Flex: Before it rebranded as the Chase Freedom Flex, I had the original version, the Chase Freedom credit card, for many years. Still, to this day, I remain a fan of the card, which has no annual fee, because each quarter it offers me a 5X bonus category to get more value from my spending (up to $1,500). Currently, I’m using the card to get 5% cash back when I shop at department stores, with PayPal, or using Chase Pay. However, the card only earns 1.5% cash back on everything else. So I leave it in my wallet for any purchases outside of the current bonus categories.
  • Ink Business Preferred℠ Credit Card: More recently, I opened the Chase Ink Business Preferred and earned 80,000 bonus points after I spent $5,000 in the first three months (which was the sign-up bonus at the time). The card, with its $95 annual fee, offers me 3X points on travel, shipping, internet, cable, phone services and advertising on up to $150,000 in spending each account year.

To be honest, I found the big annual fee for the Sapphire Reserve card a little concerning at first. But I’ve since gotten a ton of value out of the card. Ultimately, I’m happy to have it in my wallet.

Bottomline

If you’re nervous about credit cards with annual fees, remember that you don’t have to start with one of the large-fee cards. Pick one with a low annual fee that earns better rewards in an area where you have higher spending levels (e.g. groceries, dining, gas stations, etc.). Then see how much value you get in exchange.

Regardless of which type of credit card you choose (annual fee or fee-free), be sure to pay off your full statement balance each month. This will both save you money and protect your credit scores from potential damage. After all, money saved and good credit are the best rewards of all.

While we work hard on our research, we do not always provide a complete listing of all available offers from credit-card companies and banks. And because offers can change, we cannot guarantee that our information will always be up to date, so we encourage you to verify all the terms and conditions of any financial product before you apply.

Michelle Black
Michelle Black is founder of CreditWriter.com and HerCreditMatters.com. Michelle is a leading credit card journalist with over a decade and a half of experience in the financial industry. She’s an expert on credit reporting, credit scoring, identity theft, budgeting, small business, and debt eradication. Michelle is also a certified credit expert witness and personal finance writer.

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