Many people wonder why credit cards have annual fees. These fees even discourage some people from applying for cards. Usually, however, this is due to a misunderstanding of how they work.
There are various reasons some cards require a fee and others do not.
What Are Credit Card Annual Fees?
Annual fees are flat rates credit companies charge every year. To use one of their credit cards, you must pay the fee. This is separate from interest and credit repayment.
Credit card fees often range from $95-$250. Of course, there are many cards that advertise charging no fees. However, there are some benefits to cards with fees.
Perks
There are some perks to signing up with a credit card with annual fees. By paying a small amount each year, you’ll get a much bigger return.
These Perks can vary depending on the card. For a Travel credit card many airlines offer significantly more miles with an annual fee card. Others offer more cash back on purchases and other benefits.
You must consider how much you’ll use your card. If you plan to use it frequently, the perks will offset the fee. If you will use it sparingly, paying a fee makes less sense.
Lower Interest Rates
Many cards with fees offer lower interest rates. This means that by paying a bit up front, you pay less later. Interest can accumulate quickly, so a lower rate is valuable.
Depending on your situation, you may save a significant amount. A slightly lower interest rate can save you thousands. Most fees are fairly minimal.
What about Low or Bad Credit?
Some people with poor credit can get a card with an annual fee. This acts as a bit of insurance for the credit company. If you have bad credit, you may have to pay to get a card.
In this way, you can build your credit with an annual fee card. No-fee cards may not be available to you.
How Do I Avoid Annual Credit Card Fees?
Not all credit cards have fees. You can certainly choose a card without annual fees. There are many great options for no-fee cards.
If you want perks, there are still no-fee card options. Your first step is to remain in good credit standing. Pay your bills in full and on time.
Secondly, you need to use your card frequently. Never spend above your means, but use your card for small purchases. This demonstrates positive credit use.
If you have good standing and history, call your credit card company. In some situations, they may reduce or waive the fees. They are often willing to do this for reliable cardholders.