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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.

Advertiser Disclosure: Most products in our articles are from partners who may provide us with compensation. However, opinions expressed here are author's alone, not those of any bank, credit card issuer, airline or hotel chain.

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 Preferred® Credit Card

Offer Details

Secure application on issuer’s website.

Annual Fee: $95
Bonus: 60,000 Points
APR: Variable Rate
Rewards Rate: 1X-5X Points
Details: Full Review

Terms and restrictions apply

Offer Terms

Annual Fee: $95

APR: Variable APR depending on credit worthiness.

Rewards Rate: The card offers 5x points per dollar on travel booked through Chase Ultimate Rewards, 3x points on dining (including eligible takeout and delivery services), as well as 3x points on select streaming services and online grocery purchases (excluding Target, Walmart and wholesale clubs). This card earns 2x points on all other travel spending and 1x point per dollar everywhere else. Chase broadly defines travel to include not just airfare, hotels and rental cars, but expenses like parking, tolls and public transit too.

Sign-Up Bonus: New applicants can earn 60,000 bonus points after using their card to spend $4,000 on purchases in the first three months of account opening. That’s $750 when redeeming points to book travel through Chase Ultimate Rewards.

Who Should Use This Credit Card? People who are beginning with travel rewards cards.

Why We Like It

Why We Like the Chase Sapphire Preferred® Card

The Chase Sapphire Preferred actually works like having over a dozen different rewards credit cards. That’s because this credit card allows you to transfer your rewards points into miles with 11 airlines and points with three hotel programs.

Although the Chase Sapphire Preferred might not be ideal for the most frequent travelers and highest spenders, it’s part of a family of Chase cards that has a built-in upgrade path. So when it comes time to take your travel rewards game to the next level, you won’t have to start from scratch with an entirely different credit card and rewards program.

The card has a $95 annual fee, but the $50 annual Ultimate Rewards Hotel Credit effectively reduces that fee to $45. Plus, the credit card allows you to continue earning points through bonus categories and a 10% anniversary points boost. But when it comes time to redeem your rewards for travel, this card really shines. You can take advantage of some really strong transfer partners such as United, Southwest, Singapore Airlines, Virgin Atlantic and Hyatt. Similarly, you can just book any reservation you want through the Chase Ultimate Rewards travel center.

Chase Freedom Flex℠ Credit Card

Offer Details

Secure application on issuer’s website.

Annual Fee: $0
Bonus: $200
APR: Variable APR After Intro 0% APR Period
Rewards Rate: 1%-5% Cash Back
Details: Full Review

Terms and restrictions apply

Offer Terms

Annual Fee: $0

Intro APR: New cardholders can enjoy an introductory 0% APR on both purchases and balance transfers for the first 15 months. After the introductory period, a variable rate will apply. Balance transfers made within the first 60 days of account membership will be charged a balance transfer fee of either $5 or 3% of the amount of each transfer. After 60 days, that balance transfer fees increases to either $5 or 5% of the amount of each transfer, whichever is greater.

APR: Variable APR depending on credit worthiness. See terms for details.

Rewards Rate: Earn 5% cash back on up to $1,500 spent each quarter in rotating categories (when you activate), 5% back on travel booked through Chase Ultimate Rewards, 3% back on dining, including takeout and delivery, 3% back at drugstores and 1% back on everything else.

Sign-Up Bonus: Receive a $200 bonus after you spend $500 in the first three months.

Who Should Use This Credit Card? People who want to maximize cash-back rewards with the option to get more value with travel redemptions.

Why We Like It

Why We Like the Chase Freedom Flex® Card

We love that the Chase Freedom Flex card expands on an already lucrative offering from Chase. The original Chase Freedom card was already a solid choice for cash-back enthusiasts, and this one raises the bar.

The Freedom Flex also gives cardholders access to Chase Ultimate Rewards, which is arguably the most versatile credit card rewards platform available. You’ll get plenty of redemption options at good rates. Plus, if you have one of the program’s travel credit cards, you can transfer points from your Chase Freedom Flex to your travel card account and get even more value and flexibility with how you redeem.

Ink Business Preferred® Credit Card

Offer Details

Secure application on issuer’s website.

Annual Fee: $95
Bonus: 100,000 Points
APR: Variable APR
Rewards Rate: 1-3X Points
Details: Full Review

Terms and restrictions apply

Offer Terms

Annual Fee: $95

APR: Variable APR depending on credit worthiness.

Rewards Rate: You can earn 3x points on your first $150,000 spent in combined purchases on travel, shipping purchases, internet, cable and phone services, and on advertising purchases made with social media sites and search engines on each account’s anniversary year. Plus, 1x point per dollar spent on all other purchases.

Sign-Up Bonus: Here’s your chance to earn a whopping 100,000 bonus points after spending $15,000 on your card within three months of account opening. This bonus can be redeemed for $1,250 worth of travel through Chase Ultimate Rewards®.

Who Should Use This Credit Card? People who own internet-based businesses and spend heavily on advertising are the ones who can really earn the most rewards from this card.

Why We Like It

Why We Like the Ink Business Preferred℠ Credit Card

If you’re a business owner who travels a lot for work or pleasure, this card is an ideal choice. It offers a whopping 100,000 bonus points after you spend $15,000 in the first three months — with the card’s 25% bonus on travel booked through Chase, that’s worth $1,250. But you could potentially get more through one of the bank’s transfer partners. The rewards you earn from the Ink Business Preferred Card can be transferred to 10 different airline partners including United, Southwest, Virgin Atlantic, Singapore and British Airways, as well as hotel partners Hyatt, Hilton and Marriott.

Unlike the other two Ink Business cards, you can use this card to transfer your rewards directly to airline miles and hotel points. Travelers may also like this card’s cell phone protection policy that will cover up to $600 per claim.

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
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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