If a $450 annual fee for a credit card sounds absurd to you, you’re not alone.
It’s true that most Americans have absolutely no business paying that much for a card. It simply doesn’t fit their lifestyles, so no matter how enticing those sky-high sign-up bonuses might be, they would be better off choosing another less-expensive card. The average credit cardholder simply wouldn’t get her money’s worth out of one of these “elite” credit cards.
That’s not the case for everyone, however. There are plenty of people out there for whom cards, such as the American Express Platinum, Citi Prestige or Chase Sapphire Reserve, which comes with a 100,000 point sign-up bonus after you spend $4,000 in the first three months, could be worth the investment.
So here’s the $450 question: How do you know if you’re a fit for the card? The short answer is that you need to do your homework and a bit of self-reflection. That’s true whenever you apply for a new credit card, but never more so than when you apply for a high-fee credit card. There’s simply too much money at stake to take it too lightly.
Here are some things to keep in mind before you apply.
[See: 8 Ways to Maximize Your Credit Card Rewards.]
Can I comfortably reach the minimum spending thresholds? The last thing anyone should ever do is overspend to get credit card rewards, no matter how lucrative those rewards might be. The Chase Sapphire Reserve has turned heads with its giant sign-up bonus, $300 annual travel credit, $100 Global Entry credit and triple points on travel and dining, but if you can’t afford to hit that minimum spend of $4,000 in three months, you’re better off looking elsewhere. Otherwise, you can find yourself digging yourself into a debt problem.
Do I travel enough? This one’s simple. If you hardly ever travel and don’t really aspire to, these elite cards aren’t for you. You’d be far better off with a cash-back card. However, frequent travelers and those who wish to be can end up getting their money’s worth from these cards. For example, the Citi Prestige card has a $450 annual fee but comes with the following perks:
— A $250 annual travel credit that can be used to pay for airfare.
— Up to $100 to spend on TSA PreCheck or Global Entry membership.
— A free fourth night on hotel stays.
The value of those three items can exceed $450 — and that’s just a small sample of what the Prestige and other elite cards might offer — but it only matters if you’re able to take advantage of them.
Am I loyal to a specific airline or hotel? If you’re a dedicated Southwest Airlines or United Airlines customer, you should know that the 100,000 point bonus from the Chase Sapphire Reserve card can be transferred to become 100,000 Southwest miles or United miles.
If you’re loyal to Hilton Hotels, remember that the American Express Platinum card grants you gold status in their rewards program.
These cards feature dozens of other partnerships as well. If you have strong ties to one particular hotel or airline, make sure that you know which cards partner with your favorite brand before you apply for that new card. After all, the more the card ties into your lifestyle, the more you’ll get out of it.
Can I resist the lure of that extra available credit? One of the key rules of being a credit cardholder: Know thyself. If you’re the type of person who sees additional available credit as a license to go spend, just say no to getting that new card.
[See: What to Do If You’ve Fallen (Way) Behind on Your Credit Card Payments.]
Will I pay off my balance every single month? Whether your card’s annual fee is $450 or $0, paying off your balance is job No. 1. Credit card rewards can be a great deal and can send you jetting all over the world if you handle your business. If you don’t, however, the math works against you in a big hurry.
The Citi Prestige card comes with a 15.49 percent APR, roughly the average rate for new credit cards today. The Chase Sapphire Reserve’s rate goes higher, ranging from 16.24 to 23.24 percent. The American Express Platinum, on the other hand, is a charge card, meaning that you’re not allowed to revolve a balance. Your only option is to pay off your balance at the end of every month.
[See: 10 Easy Ways to Pay Off Debt.]
The bottom line. Yes, that $450 annual fee credit card can be worth it. Sometimes.
There’s no doubt that $450 is a lot of money to pay for a credit card annual fee. There’s also no doubt that some people can squeeze far more than $450 in benefits out of these elite credit cards. The key is to make sure you do your homework and understand as much about that card as possible — its costs, its benefits and so on — and think about just how much that card would be worth to you. If you do that, you’re much more likely to make the right decision for you.
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Is That Credit Card With a High Annual Fee Ever Worth It? originally appeared on usnews.com
