Good Points: Are annual fees actually worth it?
One reader's question about the headache of opening a new card
Good Points is a series that’s all about making points easier for you!
It’s a place to share short, to the point tips and tricks, an opportunity to dispel myths and teach you how to use your points wisely.
Thanks for being here, reading along and asking questions!
Here’s the third edition of Good Points!
The elevated offer on my very favorite personal premium card is going strong at 150,000 points! Don’t miss this - it’s a big deal and can earn you enough points to stay at amazing hotels, or even fly round trip to Europe in business class. Read more about it here and please use this link to apply!
For big spenders: Do you spend more than $5-$10K/month on cards? DM me for info on the best cards that can earn you 150K+ in welcome bonus points.
Good Points:
The question (from a reader):
“I’m really hesitating the headache of a new card. The “coupon book” part sounds so overwhelming - DoorDash credits, stubhub, open table dining credits (vs Resy credits) - it seems very time consuming to track these to offset the fee. I’m confident many people don’t use them because of the headache of tracking them… Have you had a different experience?”
My thoughts:
Let’s use the example of the premium card that’s out now with the 150,000 point elevated bonus. The annual fee is $795 which is steep! For many people, this feels like a non-starter which I get!
But let’s break down how I look at annual fees and the value of the bonus to determine if it’s worth it for you.
First, how I value the welcome bonus points:
I value transferable points (such as the points earned from this card above) at 2 cents per point or more. That means that a 150,000 point sign up bonus is worth at a minimum, $3,000 (150,000 x.02).
$3,000!
To get this kind of value from your points, you’ll want to focus on transferring points out to airlines and hotels — finding saver flights and booking hotel programs that have good point prices.
But, even if you can rationally see that $3,000 in points is worth more than $795 from the annual fee, it can still feel like A LOT to shell out the cash so let’s talk about how to look at the different factors that make up the decision.
Here are three things to look for to see if the card and annual fee make sense for you…
Does the card have any automatic credits that you’re guaranteed to use?
This particular card has a $300 travel credit that comes off automatically after spending $300 in travel. It doesn’t require using their travel portal or even activation. Since you’re here on this travel newsletter, it’s likely that you’ll spend at least $300 on travel in the next year, so this credit effectively brings your annual fee down to $495.
Does the card have any perks that will be easy to take advantage of?
When we visit airports and get lounge access from a credit card, we save at least $50-$100 each visit (waters, drinks, snacks, meals etc!). If you know you’ll use the lounge at least a couple times a year, this can easily offset a large portion of the annual fee. This particular card includes Priority Pass lounge access which is excellent when traveling abroad as well as lounge access at some of the bank’s lounges in various airports.
Is there an option to downgrade or cancel the card after a year?
The annual fee is nearly always worth it for the first year due to the welcome bonus even if you can’t use ANY of the benefits of the card. Read that again!
You must keep any card open for a year (that’s part of the terms and conditions that you agree to when you sign up for a card) but after that, you have options.
After the first year, check to see if there is an option to downgrade or cancel the card — if holding the card long term won’t be valuable for you.
For example, with this card, I recommend you downgrade to an old version of this card (ask me for info on this!) which has no fee. This preserves your credit history but allows you to get out of paying the annual fee more than once.
If the card you open is a business card, after a year you’ll be able to cancel the card without any impact on your personal credit! Business cards don’t report to your personal credit report so it’s a non-issue. Canceling a whole bunch of cards with any bank quickly isn’t great but closing a business card here and there should be fine.
Would I get a card with a $795 annual fee?
Yes. My husband and I are each going to apply for this card during the elevated offer and here’s why:
The $795 effectively becomes $495 due to the $300 travel credit that just comes off when we use it for travel. Even if I never used a single credit or benefit otherwise, I’m happy to pay $495 for 150,000 points (worth $3k+!) any day. And then we’ll likely downgrade at the one year mark since we have lounge access and some of the benefits through other cards.
If I have time for the coupon book part and can take advantage of some of the credits, I look at that as an added bonus. I try to focus on higher ticket credits like the hotel credit or Resy but also allow myself some grace if I just don’t want have time to think about them! I know it can seem a little wasteful but time is our most valuable resource.
We just booked 3 nights at the Park Hyatt Paris at 45,000 points each, which would have been $2,000 a night. The bonus alone from this card will pay for the 3 night stay with some points left over. I’ll effectively be paying a $495 annual fee for one year for a $6,000 hotel stay in Paris.
Below the fold:
Read about three cards I carry around in my wallet and how I track and manage the fees/credits and benefits to make it all worthwhile!
Reminder: this month we have a special for new annual subscribers to celebrate my Birthday :)
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