Enjoy the perks of your card without paying the annual fee
By Benjamin Salisbury
You may think a credit card's annual fee is non-negotiable, but it turns out you may have some wiggle room. If you're not using your card's benefits to their maximum potential, or simply unwilling to pay the fee, looking into how to get around it is a wise idea.
"Few credit cards charge an annual fee in the UK, but if you have one that does, first of all make sure that it's worth it," Jasmine Birtles, financial expert and founder of finance website Moneymagpie, said in an emailed response to questions. "The benefits you're getting from your credit card should exceed the cost."
Try these methods to avoid paying an annual fee -- or consider cancelling the card.
the card issuer to waive the fee.
This may seem an obvious tactic, but it can often be very effective. Your card issuer wants to retain customers and may decide it is worth waiving the fee to keep you happy.
"Phone up your credit card provider, point out to them how much you have spent so far and ask them to waive the fee," said Birtles.
When you ask, be
straightforward and polite. State how much you spend
on your card each year, mention your good payment behaviour and simply ask if there is any way for them to waive the fee.
2. Use rewards to pay for the fee.
Technically, you're still paying the fee if you do this, but not directly out of pocket. If you earn cashback and spend wisely to maximise the benefits, you could easily earn enough to pay your card's annual fee and still come out with a profit.
Since the introduction of the European Commission legislation on interchange fees, some credit card companies have downgraded their rewards programmes, but some credit card rewards are still generous enough to make this option worth considering.
For instance, the Santander 123 credit card has a monthly fee of £3, adding up to £36 per year (though you can get the fee waived for six months). It offers 1% cashback on supermarket spending up to £300 per month, 2% on department store spending up to £150 per month and 3% on spending at petrol stations and transportation, up to £100 per month. If you max out your cashback, you can earn £9 per month in cashback -- triple the monthly fee.
For this approach to work, your monthly cashback rewards must meet or exceed the fee, Birtles said. "It needs to pay its way through the year, otherwise there's no point and you should cancel and get a card that doesn't charge," she said.
3. Only use the card for the first free year.
"Some credit card companies will tempt you with introductory offers waiving their annual fee for the first year," Andrew Johnson, money expert for the Money Advice Service, said in an emailed response to questions. "If you take out a card with one of these offers, remember to cancel your card before the first anniversary if you want to avoid being charged."
This tactic may be especially wise if you got the card for a specific reason -- say, if you were interested in a generous sign-up bonus or if you applied for the card to take advantage of a balance transfer deal that you've paid off.
Alternatively, you may be able to downgrade to a credit card with no fee after the first year. For instance, say you sign up for the American Express Preferred Rewards Gold Card, which has a £0 fee the first year, but a £140 fee thereafter. Once your year is up, you could downgrade to the American Express Platinum Cashback Everyday Card, which still earns you cashback, but is fee free. However, know that downgrading may result in less opportunity for rewards or other benefits.
"The more benefits such as reward points, air miles or complimentary insurance your card offers, the higher the annual fee," Johnson said.
No dice? Cancel your card
You can try to get the fee waived one last time by saying that you'll cancel the account if you have to pay it. It's amazing how many providers will change their mind and waive a fee if you threaten to walk away.
"If you're serious about getting it cancelled -- in other words, it's a deal-breaker if they don't -- then put yourself directly through to the cancellations department and explain, nicely, that you'd love to stay with them but the fee is the reason why you want to leave," Birtles said.
Try this script to get your point across without being aggressive: "I am thinking of cancelling my credit card because I can't justify paying the annual fee. I spend £X on my credit card every year and am a model consumer. I would like you to waive the fee or I will have to switch to a different provider."
If they still won't budge, you're faced with two choices: pay up, or cancel.
"If they won't budge then you can leave and go to a card that doesn't charge," Birtles said. However, beware the consequences that can come with cancelling a card without thinking it through.
A hefty proportion of your credit score is decided by your credit utilisation ratio, the percentage of available credit you are using on all of your cards. If you have two cards with £1,000 limits and you carry a £500 balance, your utilisation ratio is at 25%, which is within the recommended range of about 35%. However, if you cancel one card, your ratio is now at 50%.
You'll also have to completely pay off any outstanding debt on the card before you can cancel it, so your threat could be empty if you can't pay it off.
Updated: 27 March 2017
- How to avoid and stop 'grey charges' – Paying for a service or subscription you no longer need is called a "grey charge". Here's how to avoid them ...
- How to pay debt on a fixed retirement income – Retirees have a fixed income and fewer opportunities to earn extra income, making debt repayments tough ...
- How to ensure companies truly delete your personal data – When you no longer want to be involved with an organisation, you can request it delete your personal data. But is it truly gone? ...