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Credit Cards: Benefits vs. Annual Fees

You’re probably used to being bombarded with credit card advertisements every time you turn on the TV, check your mail, or even take a flight.

Many of these advertisements promise you inexpensive vacations, free flights, or hundreds of dollars in cash back as long as you apply for their credit card.

But are these claims true? Can a little plastic card really give you those kinds of perks?

The answer is…

Sometimes.

It really depends on which card you get and how you use the card.

At the end of the day, credit card companies are trying to make money.

They do this in several ways.

One is by charging you a ridiculous amount of interest on your credit card balance…

…But you won’t have to worry about that since you read our article on credit cards and know that you should always pay off your credit card in full every month.

Another big way that credit card companies make money is through annual fees.

Your annual fee might be $30, $100, or hundreds and hundreds of dollars…or you might not have an annual fee at all!

Before you decide which credit card you want to apply for, it’s important to find out whether the card has an annual fee or not.

And if it does have an annual fee, you need to decide if the benefits the card offers are worth the fee you’ll have to pay every year.

So today, we’re going to take a look at three real-life credit cards and talk about whether each card might be worth it to you.

One card uses a point-based reward system, one uses a cash back reward system, and one is a travel rewards card.

Let’s get started!

Points System Rewards

Citi Premier Mastercard

Annual Fee: $95

Benefits:

  • Three points for every $1 spent at restaurants
  • Three points for every $1 spent at supermarkets
  • Three points for every $1 spent at gas stations
  • Three points for every $1 spent on flights
  • Three points for every $1 spent on hotels
  • One point for every $1 spent on all other purchases
  • $100 off a hotel stay worth $500 or more, once a year
  • No foreign transaction fees
  • Transfer points to airline loyalty programs, use them on Amazon or BestBuy.com, or redeem them for gift cards

More Information

The Citi Premier card lets you rack up points at a surprisingly high speed.

You get three points per dollar spent in pretty much every category, and one point per dollar spent on all other purchases.

You can then redeem these points you’ve earned to shop at Amazon or Best Buy, or redeem them for gift cards.

You can also transfer your points to an eligible airline loyalty program.

Keep in mind that with most credit cards, 100 points are worth around $1 in rewards.

So with the Citi Premier card, you would need to spend anywhere from around $3200 to $9500 per year to make up for the annual fee.

Of course, the $100 off a hotel stay worth at least $500 also makes up for the annual fee, if you choose to use this benefit.

Citi is currently running a signup promotion that gets you 80,000 points when you spend $4000 with the card in the first three months of opening your account.

Cash Back Rewards

Chase Freedom Unlimited Visa Card

Annual Fee: None

Benefits:

  • 5% cash back on trips purchased through Ultimate Rewards
  • 3% cash back on drugstore purchases
  • 3% cash back on dining purchases
  • 1.5% cash back on all other purchases
  • Rental car collision damage coverage
  • Trip cancellation insurance

More Information

With cash back cards, it’s typical to have no annual fees – which is great news for you!

The amount of cash back you receive from credit card purchases is automatically kept track of by your credit card company.

When you’re ready to redeem your cash back rewards, you can usually receive the cash in the form of a statement credit, which will reduce the amount of money you owe on your credit card statement.

Sometimes, you can also receive a check or a bank transfer instead.

Chase is also running a signup promotion that gives you $200 cash back when you spend $500 with the card in the first three months. You’ll also get 5% cash back on grocery store purchases (except for Walmart and Target) for the first year.

You can also get 0% APR for the first 15 months – but that shouldn’t matter, because you’re paying off your credit card balance in full every month!

One of the obvious benefits of the Chase Freedom Unlimited card is that there is no annual fee.

If you don’t think it’s worth it for you to pay for a credit card every year, then a cash back card like this one might be a good choice for you.

You won’t get all the special travel benefits you can get with a travel rewards card, and you won’t get to purchase items at a discount like you can with a card that uses a point rewards system, but hey – you get free money just for using the card!

Travel Rewards

Citi AAdvantage Platinum Select World Elite Mastercard

Annual Fee: $99

Benefits:

  • One free checked bag on American Airlines flights (applies to you and up to four travel companions)
  • Board American Airlines flights in an earlier group
  • 25% off food and drinks on American Airlines flights
  • Earn two miles for every dollar spent at restaurants and gas stations and on American Airlines flights
  • Earn one mile for every dollar spent on other purchases
  • No foreign transaction fees

More Information

This American Airlines credit card is a great example of a travel rewards card whose benefits apply to a specific company.

Instead of having a cash back rewards system, this card grants you “miles” that you can use to buy flights, cars, hotels, seat upgrades, and other perks.

While it might seem like you’re getting the short end of the stick with a card whose rewards you can only redeem with one company, that’s not necessarily the case.

Most credit cards give you extra rewards for purchases made at restaurants, gas stations, and/or grocery stores.

But with this particular card, you also get double miles when you buy an American Airlines flight or make purchases on one of their flights.

These rewards might not be for you if you don’t travel often or you don’t fly with American Airlines all the time.

But if American is your airline of choice, then you’re in luck.

For example, if you’re someone who lives in or near Charlotte (the Charlotte airport is American’s hub), or your flights are always connecting through Charlotte, then chances are you fly on American Airlines pretty often.

If you travel a lot and you’re using American most of the time, then a card like this one will give you miles that will really add up long-term.

Not to mention the benefit of having a free checked bag.

Checking a bag with American Airlines usually costs $30 per flight.

So if you take two round-trip flights on American with a checked bag, then you’ve already paid off the annual fee!

This might not apply to you if you tend to travel light, but it can be very useful if you need to check a bag because you packed a lot of luggage or you need to transport an item that’s prohibited from being stored in your carry-on bag.

The early boarding benefit might not be a huge deal, but it’s a non-monetary perk that adds to the charm of the card!

Additionally, this card almost always has a signup promotion going on.

Right now, you’ll get 50,000 miles if you sign up for the card and use the card for $2500 purchases in the first three months. AND the $99 annual fee is waived for the first year.

This could be a great promotion to take advantage of even if you don’t plan on using the card very much!

Before You Apply

One of the most important things to think about before applying for a credit card is your credit score.

Some cards require a good or excellent credit score for approval, while some are meant for individuals with fair credit scores.

We recommend using Credit Karma to help you find the right card for your credit score. Credit Karma will give you weekly updates on your credit score and recommend credit cards that you have a good chance of being approved for.

Final Thoughts

Whether or not a credit card is right for you depends entirely on how much you use the card and what purchases you make with it.

If you sign up for a travel rewards card but you never buy flights or stay in hotels, you might be wasting money on the annual fee.

If you sign up for a points rewards card but you don’t use the card often, then the points you do earn might not even be enough to cover the cost of the annual fee.

If you’re not planning on making a lot of purchases with your credit card, we recommend signing up for one with no annual fee so that you can accumulate some rewards without worrying about losing money!