Credit Cards

Hate paying an annual credit card fee? Make this 1 move

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Why spend money you may not have to?

Key points

  • Sometimes an annual fee for a credit card can pay for itself.
  • If you’re tired of paying that fee, there’s an option to check out before you cancel your card.

The best thing about credit cards is that they allow you to earn different rewards or cash back on your purchases. You can often enjoy these benefits without paying anything in return.

But some credit cards impose an annual fee on account holders. Annual fees may vary in cost. In some cases, you can pay $95 to keep a credit card. In other cases, your fee may be as high as $250 or even more.

If you have a credit card that charges an annual fee, you may be tired of paying it off. You may be inclined to cancel that card and replace it with one that doesn’t charge you money just to keep your account open. But before going down that path, there is another one worth considering.

You may have wiggle room with that rate

The problem with closing a credit card is that it could have a negative impact on your credit score. One factor that goes into calculating that number is the length of your credit history. If you close a credit card that you’ve had open for years, it could eventually result in a shorter credit history, which could cause your score to drop. That’s one of the reasons why you shouldn’t rush to close a credit card.

Another reason is that your credit utilization also determines your credit score. Credit utilization refers to the amount of revolving credit you are using at one time. If you close a credit card with a generous spending limit, your total credit limit will be lowered. That could drive your utilization up, hurting your credit score in the process.

That’s why canceling a credit card with an annual fee may not be as easy a solution as you think. Before you do that, it’s worth at least calling your credit card issuer and requesting that the annual fee be waived.

Why would a credit card company do that? It’s simple: they want to retain you as a cardholder. If you’ve been an account holder in good standing for many years, your credit card issuer may agree to waive your annual fee or at least reduce it. That question is worth asking.

Now, if you are a new account holder, this strategy may not work. To be clear, it may not work even if you’ve had the same credit card for a decade or more. But there’s nothing wrong with asking, and getting that fee waived could allow you to keep a credit card you might otherwise like, while protecting your credit score from taking a hit.

Are the annual fees worth it?

It is worth paying some annual fees. Imagine that for an annual fee of $95, you can accumulate $1,000 in cash over the course of a year with one card, instead of accumulating $500 in cash for the exact same purchase activity on another card. In that case, the fee in question pays for itself.

It’s when you don’t get anything in return for paying that fee that you should consider canceling the card in question. But don’t rush down that path until you try to get that fee waived or reduced.

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