Sunday Reader Email Question: How Do I Avoid Annual Fees?

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TPG reader Greg writes:

“How do you decide which credit cards are worth keeping and paying the annual fee on?  Member perks are not super important to me, whereas saving money is. Any advice would be great!”

This is a great question, because huge sign-up bonuses are nice, but do we really need 10 different credit cards for everyday use? The answer is no. How many do you really need? I personally use my American Express Platinum (but adding a Premier Rewards Gold card so I get spend thresholds and bonuses), Chase British Airways (soon to be Sapphire Preferred) and Citi AA cards. I like to maintain a solid business relationship with those three card issuers because they generally offer the most competitive credit card products.

I do not consider myself a “churner”- someone who applies for the maximum amount of cards possible several times a year. I do, however, get in on all of the best deals which keeps my mileage and point balances high enough to cover pretty much any trip I want to take. I don’t have a set number, but I usually get 4 or 5 new credit cards a year. This year has been particularly lucrative, so I’ll probably end up with 7 or so when all is said and done, but I will consolidate at some point in about 9 months to choose the cards that best fit my needs and have the best benefits.

Since the reader is concerned about fees, I’d recommend going with a fee-free American Express. Their Membership Rewards program in my opinion, is the most valuable transferable points program out there. They currently have 50% transfer bonuses to British Airways and Delta, which can give you huge value if taken advantage of properly (see this post for my take on the best route to go).While the fee-free cards are not eligible for Membership Rewards, there is a way to get around that.

While the Membership Rewards cards carry annual fees, you can always downgrade your card to a fee-free card, like the Blue or Zync Cards, and then upgrade back to a Membership Rewards card whenever you want to redeem points. When you upgrade to a Membership Rewards card, all of the points you accrued while using the fee-free card will become full, transferable Membership Rewards points.

American Express usually runs at least one Membership Rewards card with an annual fee waived and they currently have the Premier Rewards Gold card with the $175 annual fee waived for the first year and a 25,000 point sign-up bonus. The Platinum card has a $450 annual fee, but with the 25,000 point bonus and with all of the benefits like $200 a year in airline credits, free Global Entry and airline lounge access, I firmly believe the card pays for itself many times over.
Note: if you want the sign-up bonuses you need to sign out of your American Express account and apply for the cards as a new cardmember. If you call to upgrade, they usually do not offer the sign-up bonus.

Even if there isn’t an option to get a card with the fee waived, you can always get a Gold card ($125 annual fee), transfer the points and then downgrade back to a fee-free card. Your annual fee will be prorated, resulting in a negligible cost depending on how long you keep your upgraded card.

Most card issuers have no-fee card options, but I personally find American Express to be the most flexible with regards to switching back and forth between fee-free and annual fee cards. And because you are keeping the same account open, you don’t have to risk losing the long history of your account, which is one of the factors FICO takes into account when determining your score (read more about that here).

Feel free to share your thoughts on ways to accrue valuable points without paying annual fees!

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