When shopping for credit cards, your jaw may drop at the steep annual fee for the premium cards out there. Those gold-star perks do come with a price: We’re talking several hundred dollars and upwards. So when is the annual fee worth it? Here’s how to figure out whether you should fork over a hefty annual fee on a platinum credit card:
Make Sure the Perks Are Worth It
Simply put, you’ll want to make sure the perks outweigh the costs So if that travel rewards card charges a $100 annual fee, if you get over $200 in miles or points toward free travel, paying extra for that card might be worth it.
What to look for include higher than average reward points per dollar, plus the extra features and travel-related benefits. With cash back cards, it’s easy to calculate the break-even point, explains Eric Rosenberg of Personal Profitability. “You can do a little math to figure out exactly what you need to spend on the card annually to earn back your fee and make a profit.”
A Three-Pronged Approach to Assessing Value
Another way to gauge whether a premium credit card is worth the annual fee is to assess three major things: 1. short-term value, 2. day-to-day value, and 3. experiential value through premium travel benefits, says Kathy Hart, a travel hacking enthusiast.
Short-term value is the generous introductory bonus that comes with many premium credit cards. For instance, on some cards you can earn 50,000 bonus points if you spend $3,000 on your card within the first three months.
The day-to-day value is how many points you’ll net for everyday purchases. Some offers include up to three points for every dollar in certain categories. You can also score more points for rotating spending categories, such as groceries in the fall, or gas during the winter months.
Last, experiential value are all the neat travel perks that are widely promoted. This could include some sweet perks such as free ride share while traveling, meals on flights, and access to airport lounges replete with yummy snacks and beverages. Some cards may offer several hundred dollars in travel credit that you can use each year.
A word of caution: Don’t use credit cards unless paying the balance in full every month, points out Hart. “The benefits of travel points are negated if you are paying interest or fees,” she says. If you’re just starting out, start slowly.
Look at the Full Benefits
Besides the premium, heavily advertised perks of a credit card, you’ll want to get acquainted with your card’s full suite of benefits, says Lee Huffman, a personal finance and travel writer. “There are often underused perks—like price protection, VIP lounge access, purchase protections, extended warranty coverage, or primary rental car insurance—that can really provide huge value for you if you knew they were part of your card benefits.” You’ll want to compare these benefits with the other cards to see if you should keep it or apply for another one.
Track the Perks You’ve Cashed In On
Sure, there may be perks. But are you taking full advantage of them? Keep tabs on all the perks you’re raking in, estimate how much each perk is worth, then do the math to figure out if the fee is worth it. “Evaluate whether you are utilizing the benefits of the card,” says Hart. “ If you find you’re not using the card, see if you can downgrade it, or switch to a card that has a lower—or no annual fee.
To make sure the annual fee is worth it, review your cards annually. “Credit card benefits are constantly changing, so a card that worked perfectly for you last year, may not be the right one going forward,” says Huffman. “Make sure the bank is earning your business every year.” For instance, if one of your platinum cards starts to limit lounge access or reduces the number of free luggage, consider not renewing the card when the fee is due.
Another way to see if the card is worth its weight in annual fees? Add up all the value of the rewards and benefits the card offers you, but then to subtract what you would have received if you switched to the next best card with an annual fee, suggests Steele. If the difference is more than the cost of the annual fee, then the card’s a keeper.
And you’ll want to track your use as an individual that year, not just how much the card offers. So even if the card offers several hundred dollars in travel perks, but you only use, say $100 and the card has a $150 annual fee, it may not be worth it to you. And maybe the perks you end up using the most changes. And if the perks you end up using the most change you’ll want to take that into consideration.
Contact the Credit Card Company to Negotiate
Flex your negotiation muscles and see if the credit card issuer is willing to waive the annual fee. The best time to do it is right before the annual fee is due, points out Huffman. Let the credit card issuer know you’re considering closing the card because you’re not sure if the benefits are worth the annual fee any longer.
You just might be able to get them to toss in a few additional rewards to sweeten the deal. “It doesn’t work 100 percent of the time,” adds Steele, “but I’ve been successful enough that it’s worth the call.”
Before reaching out to the credit card issuer, do your homework. If you’re a customer with solid credit and have been stellar at making on-time payments, you’ll have more leverage. Plus, see what existing cards have comparable rewards and benefits with lower fees.
Consider Comparable Cards
Wondering if you should switch to another credit card? The trick is to add up the total value of a card’s rewards and benefits, then minus what you would’ve received if you switched to the next best card with an annual fee, says Jason Steele. If it ends up not being worthwhile, it might be time to switch to another credit card.
While you may initially experience sticker shock with those platinum credit cards that come with a, say, $450 annual fee, if you would end up benefiting from the travel-related and rewards points, it could end up being worth that extra chunk of change.
Jackie Lam is a personal finance writer. Her work has appeared in Investopedia, Magnify Money and The Bold Italic, and she’s been featured in Money, Kiplinger, Forbes and Woman’s Day. She runs Cheapsters.org, a blog to help freelancers and artists with their money, and to balance their passion projects and careers.