This stat melted my brain
Just how much of a price increase is too much if you get nothing in return?
Hi there, my friend.
In a recent survey, LendingTree asked the following question of about 800 people with an annual-fee credit card:
“If your primary credit card’s annual fee rose by $100 without adding any benefits, would you keep it?”
35% of those who answered said yes.
35%!
That melted my brain. More than 1 in 3 people would willingly pay an extra $100 a year for nothing.
Of course, I knew some people would keep the card. There are certainly those who get hundreds of dollars or more in value from their cards beyond the cost of their annual fee. For those folks, the card is still valuable, even with the higher price tag. For others, $100 a year may not move the needle for them enough to make it worth the time to cancel the card.
I, however, am not one of these people.
Yes, I’ve benefited from points and miles often over the years — the picture on this page is from a family trip to South Korea that was made far less expensive because of credit card rewards. However, I’ve also canceled cards that no longer served my needs or gave me value. If one of my annual-fee cards bumped up the annual fee by $100 and gave me nothing in return, I’d have a really, really hard time not moving on.
What would you do? (And feel free to elaborate in the comments below.)
Why this matters
I get that this is a hypothetical thing. I’ve watched the credit card space for more than 15 years and I don’t recall a $100 fee hike with nothing in return. Card issuers typically at least tweak their offerings when they hike their fees — adding some perks, tweaking some others, eliminating or scaling back others that might not have been as popular, for example — rather than just jacking up the fee for grins.
What frequently happens, however, is that the card’s new perks don’t appeal to you. For example, if you never use food delivery, a $100 Doordash credit won’t really matter. Or if you never use rideshare, a $200 Uber credit isn’t going to help you at all. These types of credits have become commonplace with rewards credit cards, and while they can be incredibly lucrative for those whose lifestyle they fit, for others, they are meaningless.
If those new rewards hold no value for you, it means that, in reality, your card’s annual fee went up and you had nothing to show for it — just like in the poll question.
Then it is decision time.
So what should you do?
I’ve said it a million times, but it bears repeating: When it comes to money, there’s very rarely a one-size-fits-all right answer for anything. This is certainly one of those cases.
Here are a few things to remember:
Make sure you understand what you’re getting into. Sounds simple, right? It doesn’t always happen, though. Whether you’re seeking a new card or trying to decide whether to keep your current card in the wake of recent changes, you have to do your homework. Look into the new perks and the restrictions around them. (For example, some cards may have a big travel credit, but you can only get half of it back every six months rather than taking it all in one big chunk.) The details matter with these things, and what you don’t know definitely can cost you.
You may be able to get that annual fee waived. Your chances are better than you realize. A while back, I wrote about a woman who had saved more than $1,000 in card annual fees just by asking. If she can do it, so can you. Here’s her story…
It is absolutely OK to move on if the card doesn’t work for you. No one’s feelings are going to get hurt if you cancel that card that doesn’t fit your lifestyle anymore. The truth is that no one should pay an annual fee on a card they’re not going to use. It just isn’t worth the cost. If you’re concerned about damaging your credit by closing the card, ask the card issuer to downgrade to a no-annual-fee version of the card. That’s not always an option, but it can’t hurt to ask. (Check out this CNBC.com story for more on how to downgrade and why it is a good idea.) Alternatively, you could consider asking for a credit limit increase from one of your other card issuers. The decrease in available credit that comes with closing a card is the most immediately significant way that closure impacts your credit score. However, you can minimize that damage by increasing your credit limit on another card. Just remember not to spend all that new credit.
Podcast Episode 2: Attack Of The Clones
Ok, it isn’t really called that. I’m just a lifelong Star Wars nerd, so when I hear people referring to something by episode number, my brain automatically goes to a galaxy far, far away.
This episode, with my friends Sarah Schweis and Nancy Jones, is all about credit. As usual, we keep it relatable and fun while giving you practical information that can make a difference in your financial life.
Listen, like and subscribe!
Until next time!
Matt