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Should You Pay for Your Credit Card?

I’ve been asking this question more and more recently. I ran a poll on Twitter quite a while back and most of the people who answered said they weren’t paying for their Credit Cards.

Screenshot 2017-08-17 07.58.57

So I decided It was time I crunch some numbers. Having recently figured out that Cash Back was the king (check out the article here), I wanted to find out if the Free Cash Back card was better than the Annual Fee Cash Back card.

Let’s see…

I’m going to use my personal card as an example but you can easily switch the numbers here with the ones that apply to you.

Going head-to-head will be 2 MBNA Rewards MasterCard:

  1. Free, sign-up Bonus of 5,000 reward points ($50), 1% Cash Back on all purchases
  2. $89/year, sign-up Bonus of 10,000 points ($100), 2% Cash Back on all purchases

I’ve divided the yield in terms of different spending categories, ranging from $500 to $5,000 monthly. Here are the numbers for a 5-year scenario:

Screenshot 2017-10-13 15.24.39

Screenshot 2017-10-13 15.50.37.png

The highlighted squares are the ones in which the annual fee card is at a disadvantage compared to the free card. What we immediately see is that in the long run (5 years in this case), the annual fee card is almost always worth it. The only scenarios that makes the Free card worth it, is if you’re a VERY FRUGAL person that only spends $500 monthly. And even then, you’d better keep your card more than 1 year to make it worth it. As long as you are above $1K/month it doesn’t matter what spending category your are in or how long you keep the card.

So there you have it! What cards are you guys using? Does it have a fee? Did you compare it the best available Free/Fee equivalent card?

I give the Credit Cards a lot of importance because they play such a central role in our personal finance lives and as such, we should learn as much as we can about them and find the right one for our personal situation.

Thanks for reading along 🙂

Don’t forget to check out my Youtube Channel and Twitter

Cheers!

-DI

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Dividend Investor View All

Money Lover, Dividend Growth Investor, Youtuber, and Blogger!

2 thoughts on “Should You Pay for Your Credit Card? Leave a comment

  1. Not a fan of annual fees on credit cards. But I also fall into the frugal category. I don’t do a lot of spending so I don’t get a lot of return. Also depends on what you are buying. If you buy something you don’t need and get about 5% cash back, you didn’t make an extra 5%, you spent more money you didn’t have to. All a matter of thought process. But either way, free money for using a credit card is an easy call for anyone. Just make sure to pay it off each month to not pay interest.

    Liked by 1 person

    • For sure, The same goes for Ebates. Buying something useless doesn’t mean free money, it means useless spending. the optimal situation is to centralize monthly bills to the Credit Card and basically use it as a Debit Card for groceries, gas, etc. Thanks for reading 🙂

      Like

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