Are you trying to figure out how to pay for your next vacation? A growing trend is applying for travel credit cards. Some offering the most rewards charge an annual fee. However, some travel credit cards may not be worth the annual fee.
Before you apply for your next credit card, you must decide if the annual fee is worth the benefits. To help you decide, consider the following points before getting a credit card.
Can You Earn the Signup Bonus?
Most credit cards offer one-time signup bonuses to attract new cardmembers. These bonuses can be worth as much as $750 in award travel when you spend a certain amount of money in the first three months. Annual fee credit cards tend to offer larger bonuses but can require substantially higher spending.
For instance, you may need to spend at least $4,000 in the first 90 days to earn the bonus for a card that charges an annual fee. If you don’t spend enough, you don’t qualify for the bonus points.
Regardless of which credit card you apply for, only make credit card purchases that you can repay in full each month. Any interest charges on an unpaid balance can offset your bonus amount.
Finally, don’t apply for a card with an annual fee only because it has an attractive signup bonus. The recurring benefits can be more important than the one-time bonus you earn.
Your Earn Valuable Rewards Points
If possible, compare the annual fee and no annual fee version of the credit card to see which one is a better fit for your spending. Also, compare the redemption options as cards that have an annual fee may offer exclusive redemption bonuses and point transfer partners.
Bonus Purchase Categories
It’s not uncommon to earn more bonus points on select purchases with an annual fee travel credit card. For instance, you can earn 5 points per $1 spent on airfare purchases with the Platinum Card from American Express. Most no annual fee credit cards only award up to 1.5 points per $1 for the same flight purchases.
Being able to quickly earn rewards points lets you book award travel more often. If these additional travel bookings outvalue the annual fee, then you know the upfront cost is worth the higher potential rewards.
Compare Redemption Options
Some of the most valuable credit cards rewards points you can earn are Chase Ultimate Rewards points. They can be worth up to 50% more when redeeming for award travel instead of cash awards, as is the case with Chase Sapphire Reserve points. You can even transfer them to select airline and hotel loyalty programs on a 1:1 basis.
But, these two travel redemption benefits come with a price. They are only available if you use a Chase Sapphire product that charges an annual fee. These benefits are not applicable with the no annual fee Freedom card family.
Will Use the Additional Card Benefits
Another difference between the annual fee and no annual fee travel credit cards is the additional card benefits. Cards without an annual fee usually don’t offer complimentary travel benefits that offset the annual fee and help you save money when traveling.
Some of these benefits include:
- Airline fee credits
- Travel statement credits
- Airport lounge access
- Free checked bags
- Global Entry or TSA PreCheck application fee reimbursement
Several hotel credit cards offer a free hotel night on every card annual fee renewal. When the nightly rate costs more than the annual fee, you “get paid” for redeeming your annual night certificate. For instance, the credit card annual fee is $95 and the nightly rate is $150. Redeeming your free night helps you save $55.
Airline credit cards usually let you and several companions check one bag for free. If you currently pay baggage fees, this is an easy way to instantly save $50 per bag roundtrip when you fly. More luxurious airline credit cards may offer an annual companion certificate where you only pay fees and taxes for your seatmate’s ticket letting you easily offset the annual fee.
Premium Travel Benefits
The most benefit-rich premium travel credit cards may charge annual fees as high as $550.
Frequent travelers can save more when they use the card benefits like travel fee credits, complimentary airline lounge access, and on-property hotel credits to name a few possibilities. Assuming you pay for these expenses already, this benefits can save you hundreds, if not thousands, of dollars every year in travel costs.
If you are only a periodic traveler, you may stick to credit cards with annual fees below $100. Although you get minimal benefits, it can be easier to offset the annual fee. And, you can still get access to a better rewards program than no annual fee credit cards charge.
Plan on Keeping the Card Long-Term
Credit cards can be an easy way to build a credit history. Your credit score can grow whether your annual fee is $550 or $0. You only have to pay your balance in full each month and keep the account open to establish a positive account history.
When the rewards program and benefits don’t offset the annual fee, it can make sense to cancel the card to save money.
One downside is that closing credit card accounts temporarily penalizes your credit score because your credit history length and total available credit will decline. If you apply for a new credit card, your credit score drops a few extra points for the near future.
If you are only applying for an annual fee travel credit card to chase an outsized signup bonus with the intent of closing the account soon after, you may stay away. Otherwise, you might feel forced to continue paying the annual fee in order to maintain a high credit score.
You Have Good Credit
Many travel credit cards require a minimum 670 credit score for the best approval odds. The most desirable travel credit cards may require a 740 credit score.
Seeing if you prequalify for the annual fee travel credit card of your choice can be a good idea to see what your credit card options are. If you have a limited credit history, you may not qualify for the most luxurious credit cards yet.
If you don’t have the best approval odds, you may need to stick with a cash rewards credit card instead. This way, you still earn rewards and most likely will not pay an annual fee. As your score improves, you can apply for a travel rewards credit card with an annual fee that offers more attractive rewards and card benefits.
When Travel Credit Cards Are Worth the Annual Fee
These are the three main reasons when paying the annual fee is worth it:
- The rewards points and benefits offset the annual fee
- You earn more than similar fee-free versions
- Plan on owning the card for several years to optimize credit history
If there are multiple card versions with varying annual fees, choose the card that offers the best benefits for your travel and spending habits. You can always downgrade to a cheaper card version if you decide the premium product isn’t worth the annual fee.
When to Get a No Annual Fee Credit Card Instead
Travel credit cards with annual fees are not always the best option. These are the two primary reasons why you may avoid getting a travel credit card with an annual fee:
- Rewards points and benefits don’t offset the annual fee
- Can’t meet the signup bonus offer spending requirements
- Only want a secondary card to prevent your loyalty points from expiring
Several airlines and hotels offer no annual fee credit cards that offer purchase rewards but very little in terms of extra benefits. These cards are a good option if you are an infrequent traveler and don’t want your points balance to expire due to account inactivity.
We all have different travel tastes. The best travel credit card for you may not be the best option for your best friend or co-worker. Travel credit cards are worth the annual fee when you regularly use the card’s travel benefits and can maximize the rewards points. If not, you should see if the loyalty program offers a product without the annual fee.
Josh Patoka has been to six different countries and most of the United States. These days, he enjoys traveling with his growing family in his free time. You can find Josh writing about travel hacking on Johnny Jet.