Your Huge Fee is Due…
Nobody likes paying annual fees. Some credit cards have a relatively low annual fees, while some of the travel credit cards I encourage people to get have very high annual fees.
Why would I tell you to spend more money when this is a website about saving money? Well, if you can maximize your cards so that you gain more than the annual cost, then you effectively never have to pay your annual fee! It sounds complicated, but it is really simple. So simple that even you can do a Points Doctor happy dance.
My Cards With Annual Fees
I have quite a few credit cards that I pay an annual fee for. In every instance, however, I get more from the card than the cost I pay. There is some level of subjectivity to my valuations, and not everyone will need or should have the same cards that I do. Nevertheless, I wanted to walk through the cards that I pay a fee for, and show how even a high annual fee can be justified.
World of Hyatt Credit Card
This card has a $95 annual fee, but is still one I keep year after year. I have had this card for at least five years, and plan to keep it for the foreseeable future. I use it to help with my Hyatt status as it gives me five free qualifying nights every year. But for a lot of people, these qualifying nights will not mean much.
However, there is one card benefit that everyone can utilize. Every year you keep this card, you get one free night at any category 1-4 Hyatt in the world. What exactly does this mean? Well, Hyatt hotels are classified in categories from 1 - 8. In general, luxury hotels are in the higher tiers, while the more cookie-cutter hotels are in the lower tiers. There are a lot of exceptions to this rule, with some amazingly nice category 3 and 4 hotels.
So for $95 a year, you can redeem a free hotel night in whole host of Hyatt properties across the world. If you never travel at all, obviously this is useless to you. But if you travel once a year to a city that has a category 1-4 Hyatt hotel, you can take advantage of this free night. If the hotel night would have cost $95 anyway, then you effectively break even on the annual fee you paid.
Of course, there is the potential to get more value out of your free night. On my recent trip to New Orleans, for example, I stayed at the Eliza Jane, a category 4 property. Rates were over $350 a night, with Saturday night going for an incredible $679! I redeemed a free night award for one of my nights in the Big Easy. I effectively paid $95 for a $350+ room - that’s a good deal!
The true valuation of the annual free night will be context dependent, and may change from year to year. As long as you use it for a hotel night that would have otherwise cost $95 or more, you are in great shape! Personally, it makes financial sense for me to keep this card.
Chase Sapphire Reserve
I have written about this card so many times, and by this point you may be sick of hearing about it. But I talk about the Reserve card so much because I always get incredible value from my Ultimate Rewards points. Something I have not talked about extensively is the large elephant in the room - the card has a $450 annual fee.
I have touched on the fact that the Reserve comes with a $300 travel credit every calendar year. So from Jan 1st - December 31st every year, you get $300 automatically reimbursed for any spend on hotels, flights, train tickets, Uber, Lyft, parking, tolls, cruises, rental cars… the list goes on. I imagine a lot of people spend more than $300 for such expenses per year, so I take the $300 at face value. This effectively drops the annual fee for the card down to $150 a year.
How do I justify paying the other $150 a year?
The Chase Sapphire Reserve earns 3x points on all restaurants and travel purchases. Let’s say you spend $300 a month in travel and eating out, which is a relatively conservative estimate for most. If you put all that spend on your Reserve card, you will earn 900 points a month, or 10,800 points a year. Even if you disagree with my valuation of 1.7 cents per Ultimate Reward point and go with the bare minimum of 1.5 cents, those 10,800 points are still worth $162 toward travel.
In other words, the points you earned from putting your travel and dining spend on the Chase Reserve Card are worth more than the $150 you have to pay to keep the card. Again, this is based on a conservative $300 a month spend estimate. If you spend more than that, then naturally the card will work more in your favor.
You need to look at your spending habits and see if the math makes sense. If it does, then there is no need to avoid applying for this card despite its seemingly high annual fee.
American Express Gold
This is my go-to grocery store card. It comes with a somewhat hefty $195 fee, but it also comes with an annual $100 airline credit. There are some nuances to how this credit can be used, but it seems to work with jetBlue flights. As a result, the true annual fee of the card drops to $95 for me.
The card does offer a $10 monthly credit at Cheesecake Factory, Shake Shack, Ruth Chris, and any orders you place on GrubHub. If you can take full advantage of this card benefit, then obviously the $120 value will fully recoup your annual fee. My dietary habits just do not align with the monthly credit.
The two things that do align are the card’s 4x points at grocery stores and my spending habits. My wife and I spend $700 a month in groceries, which means we earn 2,800 points a month. That is 33,600 points a year, which are worth $571 to me at 1.7 cents each. Obviously the points I earn more than cover the cost of my annual fee!
It’s All a Game
The banks already make money off merchants when you use your credit cards, They are also trying to make money off you with annual fees and high interest rates. Do not let them do it! If you are smart with budgeting, pay off your credit cards on time and in full, and maximize your points earning potential, you can be well on your way to winning the travel hacking game. Never paying an annual fee is a good place to start!