In part 4 of our beginner series we’re going to be talking about those pesky annual fees and why, most of the time, they aren’t as bad as they seem.

When deciding on which cards you should apply for it’s all about determining the overall potential value of a new credit card and to do that you have to take into consideration the annual fee that comes along with it each year. Often times, beginners in this hobby see that annual fee and immediately get turned off. But don’t close the door on that card too quickly! All you need to do is weigh the value of the sign up bonus and annual benefits vs. the cost of the annual fee. You’ll need to do some quick research on all the perks that come with the card, assign a dollar value to those perks, add that to the value of the sign up bonus, then subtract the annual fee. This simple equation will give you the overall potential value of applying for the card. Repeat that same equation once more without adding the value of the signup bonus and that will give you the overall potential value of keeping the card after the first year. If you’re still in the positive you’re still saving/making money despite that scary annual fee!

(Insert Basic Math Graphic)

A quick review to make sure I didn’t lose you. We’re simply trying to determine 2 things:

  1. Is the card worth applying for.
  2. Is the card worth keeping annually after you’ve earned your signup bonus

There are basically 3 possible conclusions you can come to:

  1. Apply for the card with the plan of canceling at month 11.
  2. Apply for the card and keep it forever.
  3. Don’t apply for the card.

To make this easier to understand I’m going to go through this evaluation process on 4 different cards with 4 different annual fees that are currently in my wallet.

Chase-Freedom-2014_zps7fflil4l

Chase Freedom – Annual Fee $0

We’ll start with the easiest first. Many cards come with no annual fees. The downside to this is that often times they don’t come with many perks or benefits either. In this case the Chase Freedom comes with a $150 cash back (15,000 Ultimate Rewards Points) sign-up bonus along with an earning rate of 5 points per dollar in various categories that rotate quarterly. While there are benefits/reasons to keep the card based off of its potential earnings from daily spending it would be hard to assign a dollar value to that and will vary from person to person so I’ll simplify things by valuing the annual perks at $0. Lets do the math, even though we all know the answer already.

Should I apply for the card?

Value of Sign-Up Bonus ($150) + Value of annual Perks ($0) – Annual Fee ($0) = $150

Conclusion: Yes!

Should I keep the card?

Value of annual Perks ($0) – Annual Fee ($0) = $0

Conclusion: Yes!

1bbt_sigcm_v_black_250x158Alaska Airline Signature Visa – Annual Fee $75

You wouldn’t think it but Alaskan Airline miles are some of the best miles in the game and the Alaskan Airline Signature Visa is an easy way to get some fast. Currently the best offer includes a sign-up bonus of 30,000 and a $100 statement credit. I currently value Alaska miles at 1.8 cent per point which gives the 30,000 points a potential value of $540 plus the $100 statement credit. The card also offers a companion pass starting at $121 and free checked bags. Lets do the math!

Should I apply for the card?

Value of Sign-Up Bonus ($640) + Value of annual Perks (varies) – Annual Fee ($75) = $565

Conclusion: Yes!

Should I keep the card?

Value of annual Perks (varies) – Annual Fee ($70) = ?

Conclusion: Probably not. However, If you fly Alaska frequently then you could find a lot of value in the free checked bags and discounted companion pass.

Hyatt Card Pic1Chase Hyatt – Annual Fee $75 (waived first year)

This card comes with a unique sign up bonus of 2 free night certificates at any Hyatt Hotel. Obviously there is a lot of variation in the value you would get out of this but the smart thing to do would be to redeem these at one of Hyatt’s luxurious category 7 properties such as the Park Hyatt Maldives or the all-inclusive Hyatt Zilara Cancun. Nights at these high end properties range from $400-$800 a night so it’s easy to get over $1000 in value from this sign-up bonus. Another awesome benefit of this card is a free night certificate at any Hyatt category 1-4 hotel on your card membership anniversary. While the value of this certificate isn’t as high as the unrestricted certificates it’s very easy to redeem this annual night at a category 4 hotel with rates averaging around $300 a night. Math Time.

Should I apply for the card?

Value of Sign-Up Bonus ($1000) + Value of annual Perks ($0) – Annual Fee ($0) = $1000

Conclusion: Absolutely!

Should I keep the card?

Value of annual Perks ($300) – Annual Fee ($75) = $225

Conclusion: Yes. Even if you don’t travel frequently it’s very likely that you’ll need at least a few nights in a hotel each year and this is a great way to get a free night well worth more than the annual fee.

american-express-platinum-card.pngAmerican Express Platinum  – Annual Fee $450

The sign-up offers on Amex cards often vary throughout the year but I was able to snag it with a sign up bonus of 100,000 MR points. I value MR points at 1.9 each giving this sign-up bonus a value of $1900. The platinum card also comes with a slew of impressive perks the most impressive being a $200 airline credit each calendar year, a reimbursement for Global Entry & TSA Pre-Check ($100 value), Bogo wifi membership ($120 value), and access to Amex Centurion Lounges and Priority Pass ($400 value). For our purposes I’m only going to count the $200 airline credit into the equation because it can be used to buy Amazon gift cards and that’s essentially cash. While the other benefits are great not everyone may utilize them based on their lifestyle.

Should I apply for the card?

Value of Sign-Up Bonus ($1900) + Value of annual Perks ($200) – Annual Fee ($450) = $1650

Conclusion: Yes!

Should I keep the card?

Value of annual Perks ($200) – Annual Fee ($450) = [-$250]

Conclusion: Cancel.

Take Away

High annual fees can have a bit of a shock value but often times the higher the fee the higher overall earnings will be higher. Don’t be afraid just do a quick evaluation to determine the overall potential value.


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