4 ways to avoid or offset your card's annual fee

A high annual fee can be a huge turn-off to potential credit card customers, even if the card comes with rewards or other perks. But sometimes you can avoid the fee, or at least make it worth your while.

"It never hurts to ask for a better deal," Brenda Hiscock, certified financial planner at Objective Financial Partners, said in an emailed response to questions. "I have found that there is often room for negotiation when getting a new credit card."

Here are four ways to enjoy the perks of a credit card with an annual fee - without actually paying for them.offset-avoid-annual-fee

1. Find a card that has the fee waived for the first year.
As a way to entice new sign-ups, some credit card issuers waive the annual fee for the first year you have the card.

Since credit cards with annual fees typically offer higher rewards than no-fee credit cards, this is a great way to try out the perks that come with the fee - without actually having to pay it. Use the first year to see if the card pays for itself in rewards, insurance or other perks.

You can assess the value of the credit card by adding up the value of your points at the end of a year to determine if you should pay the annual fee next year. If it does, you can keep it and rest assured that you're getting your money's worth. If it doesn't, you can cancel after the first year.

2. Ask your issuer to waive your fee.
If your credit card is up for renewal and you're facing an annual fee, don't be shy to phone your issuer and ask for the fee to be waived - it might do it to keep you as a cardholder.

"If you have a strong credit score, it can be used as a bargaining tool," said Hiscock.  "Don't be afraid to use that as leverage when negotiating fees and benefits."

If your issuer won't budge, consider switching to the no-fee version of your card or to another annual fee credit card with a big sign-up bonus. Again, before switching, look at the value of the perks you're receiving from your current credit card.

For example, if you card has low or no foreign exchange fees and you frequently travel internationally, figure out how much money you're saving before closing your existing credit card. If the benefits outweigh the cost, you might think twice about closing it.

A word of caution: you don't want to close your old credit card and switch credit cards too often. Too many hard credit inquiries can lead to a lower credit score. Since payment history is the main factor that contributes to your credit score, focus on building a solid payment history instead of jumping from credit card to credit card every year. Additionally, if you switch cards, you may be giving up all the rewards you collected on the card you're cancelling.

3. Take advantage of a big sign-up bonus.
Another way credit card issuers try to woo new customers is by offering a big sign-up bonus. It may be double the points for the first few months you have the card or a jackpot of points when you make your first purchase. Some sign-up bonuses take effect once you've made your first purchase, while others require you to spend more than a certain amount, say $2,000, in the first three months to qualify.

Many travel rewards credit cards offer such bonuses. For instance, Aeroplan's American Express Aeroplanplus Reserve, Platinum and Gold cards come with 50,000, 40,000 and 15,000 welcome miles, respectively, if you spend a certain amount within the first three months of membership.

It's also important to consider cost-benefit.

"For example, I pay an annual fee of $120 for my Aeroplan Visa," said Hiscock.  "I put all of my expenses on my Visa, and typically end up with two North American return flights per year.  The savings on plane fare, in my case, definitely outweighs the cost of the annual fee."

This requires discipline, she said, because you'll have to make sure you pay off your card in full each month to avoid added interest costs.

4. Switch to a no-fee version of your card.
Many credit cards come in two versions: fee and no fee. In general, the version with the fee, or the one with the higher fee, will provide more rewards-earning opportunity, and may come with more bells and whistles than the cheaper version. It may come with travel insurance, for example.

But don't just assume the fee version will provide better value. Before signing up, take the time to do the math to make sure you'll earn enough rewards to offset the annual fee. Calculate the dollar value of your points to see how much the points are worth to you. If you're not a big spender, you might be better off with lower rewards and no annual fee.

Credit card interest rates are another factor to consider before making the switch, especially if you're carrying a balance.

"Before switching to a no-fee version of a card, it's important to ensure that the no-fee card does not carry a higher interest rate," said Hiscock. "If it does, and you carry a balance, it could cost you far more in the long run."

If you're sure the no-fee version provides better value, call up your credit card issuer and ask to switch to the no-fee version.

See related: Your options if your issuer changes your agreement, What your card's travel perks actually have to offer
Published October 24, 2016

Most recent All credit card news Stories