Is It Wise to Pay an Annual Fee on a Credit Card?

Is It Wise to Pay an Annual Fee on a Credit Card?

By Tracy L. Hirsch

Here’s how to know when it’s worth it, and when it’s best to seek alternatives.

Everyone knows that certain charge cards and credit cards come with an elite social status. American Express has built an empire by creating advertisements with A-list celebrities who use their charge card. These ads tell us, as consumers, that we too will experience the perks of being rich and famous if we use their card.

While that’s usually not true (you would have to have a multi-million dollar net worth to live the same lifestyle as an A-list celebrity), the part that is true is that there are greater rewards from charge cards and credit cards that have an annual fee attached.

Before you apply for one, you need to assess two important deciding factors. First, will you actually obtain the rewards, points, and perks that you want in regards to your travel habits and the amount of money that you spend?

Second (and just as important as the first), are you able to responsibly pay off your credit card balance in full every month? If not, you’ll end up paying an annual fee and lots of money in interest. That’s not a good situation for anyone.

The majority of bankruptcy attorneys in Louisville will tell you that credit card debt is one of the top reasons that people need to file for bankruptcy (in addition to unpaid medical bills and overbearing student loans).

To avoid this, when using a credit card, it’s imperative to know that you can pay it off in full every month. In the case of an emergency, it’s important to make large monthly payments so that you can get it paid off in a few months instead of a few years.

If you feel confident that you’ll only charge an amount that’s equivalent to or less than the amount of income you bring in every month, then a credit card or charge card can provide wonderful perks.

Annual fees can work in your favor or put you in the red. Here’s how to know if it’s worth it for your personal situation.

If you’re considering applying for a card with an annual fee (or already have one), how do you know if it’s worth it to pay $95, $125, or even $150 per year? Here’s the breakdown:

1.) Is it being used for business expenses or personal expenses? Many credit cards and charge cards that have an annual fee attached offer better rewards and travel perks than cards with no annual fees.

So if you own a business, using your card for large purchases (inventory supplies, electronics, etc.) may get you a decent amount of airline miles, as well as discounts on dining and hotels. In addition, charge cards like American Express offer luxury travel lounges at all major airports, and that can be a big plus for a businessperson who’s always traveling.

If you’re able to pay off the balance in full every month, and you travel frequently to meet with clients, attend seminars, and so on, a card that offers triple points for airline miles or 5% cash back on business-related expenses is a good choice.

For example, if your annual fee on a credit card is $95, and you rack up enough points to get a free roundtrip to the west coast, you’re seeing a great return on your investment.

A weekend roundtrip ticket from Kentucky to California could easily cost around $500 (and even more during peak travel season), so if you get a free flight in exchange for your annual fee, you’re basically only paying $95 for that roundtrip ticket, which saves you $405.

If you’re using your card for personal expenses, such as groceries, oil changes, and gas, you most likely won’t obtain enough points or earn significant miles to justify the annual price tag. There are other credit cards without an annual fee that offer cash back and miles, which could be a better option.

If you’re not really using any of the perks and don’t travel, you could be paying a hefty annual price tag without reaping any benefits. If you’re paying for a card that has a high annual fee, it may be time to trade it in for a card that gives you different perks (cash back on gas and groceries) without the yearly fee.

2.) Do you travel and go out to eat frequently? I’m going to piggyback off of my first point to delve into the travel and dining perks a little more. Not all business owners travel for work, and many people (whether they are entrepreneurs or not) travel for fun.

Either way, if you like to travel and dine out, a card with an annual fee will provide a solid return on your investment. Even if you only travel within the Unites States, you can get rewards and discounts for hotels, flights, and restaurants.

Let’s say you don’t even travel, but you eat out four or five times a week at restaurants in the greater Louisville area, you’ll still solid rewards in exchange for your annual fee. However, if you’re someone who never travels and rarely goes to restaurants, you most likely aren’t getting a return on your investment.

3.) How much do you spend every year? When it comes to credit cards, the more you spend, the more rewards and points you earn.

So let’s say the particular charge card or credit card you’re considering offers 5% cash back on certain restaurants or a specific amount of airline miles, it’s important to know how much you have to spend in order to obtain those rewards.

If you have to spend $10,000 annually to earn enough airline miles for a free domestic roundtrip flight, but you only charge $2,000 a year onto your card (plus pay the annual fee), you’re not getting any benefits. So before you apply for a credit card or charge card with an annual fee, be sure to do your homework.

Research all of the perks, rewards, points, and cash back, along with the disclaimers that come with them. Not every single purchase qualifies for cash back or rewards, so it’s important to read the fine print.

As you can see, there are upsides in applying for a card that has an annual fee, but only if you meet the requirements for the rewards. Do you currently have a card with an annual fee? Do you think that it’s worth it? Give us your thoughts in the comments below!

All the best,

Tracy L. Hirsch

Kentucky Bankruptcy Attorney

Need a free consultation? Text or call me at (502) 435-2593!


Misleading Advertisements Can Create a Path to Bankruptcy. Here’s How.

Misleading Advertisements Can Create a Path to Bankruptcy. Here's How.

By Tracy L. Hirsch

University of Phoenix is just one example of how misleading ads could cause financial trouble for unsuspecting individuals.

I’ve been a bankruptcy lawyer in Louisville for almost two decades, and over that period of time, I’ve seen many people who were promised a stable future, but never got it. Often times it’s from educational institutions, cash advance businesses, and debt settlement companies.

Many of them claim (respectively) that if you enroll in their courses, take out a cash advance to pay for wants (such as TVs, upgraded appliances, etc.), or “settle” massive amounts of debt, you’ll have a secure financial future.

Some of the most subtle culprits are universities. They often advertise a high job placement rate (or imply it), but have no evidence to back it up. This lures students into taking out tens or even hundreds of thousands of dollars in student loans for degrees that will not provide a salaried job.

Many of those individuals often defer or default on their student loans, and end up with massive credit card debt as well in order to pay for living expenses.

The debate on Capitol Hill surrounding student loan debt is at an all-time high, as many politicians are advocating for student loan cancellations for certain groups or at least allowing those loans to be discharged in a bankruptcy plan.

At first glance, it seemed like a popular university, University of Phoenix, was a trailblazer in this effort when headlines were stating that the online university is going to cancel over $100 million in student loan debt owed to them.

Don’t trust advertisements alone for factual information. Make sure that you do your research when you’re considering taking out a sizable loan, especially for an educational degree.

After further examination, however, it came to light that the reasons were anything but altruistic. The university is part of a large settlement case due to dishonest and misleading advertisements that were released in 2012. This well-known online university is canceling student loans for students who were enrolled at U of P between October 2012 and December 2016.

During that time, University of Phoenix aired misleading commercials which claimed that they had direct ties with big companies like Microsoft, AT&T, Adobe, and Twitter. The commercials implied that the university had partnered with these major corporations to create career opportunities for their students.

After an investigation from the Federal Trade Commission, this was determined to be untrue. The FTC filed a lawsuit, and in addition to cancelling $141 million in student loans, University of Phoenix must pay an additional settlement amount of $50 million. The FTC says that the settlement will be used to help the students who were misled by the dishonest advertisements.

While this is already bad PR for University of Phoenix, it’s even worse considering the fact that there is documented evidence that the vice president of the university had objected to the ads back in 2012.

He sent written correspondence to the chief marketing officer stating that one of the ads was “smoke and mirrors,” specifically referring to the fact that the ad implied that University of Phoenix worked directly with Adobe as a business partner.

On top of all this, U of P is the United State’s largest recipient of tuition funds that come from the GI Bill. This means that University of Phoenix recruits a lot of military veterans, many of whom were misled by the 2012 advertisement.

The multi-million dollar settlement that is about to ensue has been commended by veteran advocacy group ‘Veterans Education Success.’ The President of VES, Carrie Wofford, said she’s grateful for the Federal Trade Commission’s investigative work:

“The FTC’s findings should shock every patriotic American. Enough is enough. It’s time to stop the fleecing of America’s veterans and service members by predatory colleges.”

The whole scenario is very unfortunate and begs the question, “How many students (who were enrolled between 2012 and 2016 due to the misleading ads) later on went to file for bankruptcy because of having massive student loans and being underemployed?”

While those statistics are unknown, many students initially felt that the investment in their education was worth it because they thought they would see a return with a secure, salaried job at a large corporation.

The sad reality is that regardless of whether or not directly misleading advertisements are in the mix, most students take out student loans with the impression that they’ll get a return on their investment.

According to a recent survey by Gallup and Purdue University, it was discovered that “less than half of recent grads think college was worth the cost.”

Twenty-five years ago, a Bachelor’s degree guaranteed a solid career path, and now, it usually only guarantees high student loan debt and an hourly-wage job.

So what are the alternatives? While University of Phoenix has the appeal of flexibility with online classes, most local colleges now offer night and weekend classes, and even some online courses.

If you’ve been a Kentucky resident for more than a year, you most likely qualify for in-state tuition fees (although some universities have additional requirements), and that is the wisest choice.

Going to an out-of-state school (and paying the out-of-state tuition that comes with it) is never a good idea unless you have a full scholarship, especially for a Bachelor’s degree.

For example, University of Louisville charges approximately $12,000 a year for in-state tuition, and approximately $28,000 a year for out-of-state. Most schools charge more than double (sometimes almost triple) for out-of-state residents.

If we do the math here, a Kentucky resident would pay approximately $48,000 for a four-year Bachelor’s degree, and a resident from Virginia who moves to Kentucky to go to U of L, for example, would pay about $112,000 for the same degree.

While the in-state tuition is much lower, it’s still an enormous amount of money for a bachelor’s degree, especially if you plan on going for your master’s degree afterward. This is where it’s imperative to really do your homework to see what the job market looks like for your field of study.

There are various ways to do that, and if you find out that the likelihood of getting a steady job is low with the particular bachelor’s degree that you’re looking at, there are alternatives.

One of the alternative routes is to learn a trade, and this is where community college is an excellent choice. Louisville has Jefferson Community College and Technical School, and their yearly tuition is only about $4,000, and out-of -state is about $13,000.

While they don’t offer bachelor’s degrees, they offer associates degrees and certifications in medical coding, dealership technician training (such as Honda, Mercedes Benz, etc.), culinary arts, medical lab technician training, cosmetology, and more. These fields often have a high job placement rate, and there are usually opportunities for growth.

While everyone’s situation is different, it’s definitely important to assess the ROI (return on investment) when it comes to an advanced degree. Don’t just take a college’s word for it when they claim that 90% of their students end up getting high salaried jobs.

Putting your financial future on the line because of clever advertising could lead to overwhelming debt, and eventually, the need to file for bankruptcy.

If you have children in high school, it’s important to talk to them about these things when they’re looking at schools. If they aren’t receiving a significant discount through scholarships or financial aid for a Bachelor’s degree, or if that particular field of study has a low job placement rate, it may be beneficial to look at a different field of study or to consider a local Kentucky trade school.

The bottom line is this: Before receiving a formal education from a university, educate yourself (and/or your children) on the potential financial pitfalls that could arise. It’s never too early to set the foundation for a stable financial future!

All the best,

Tracy L. Hirsch


Need a free consultation? Text or call me at (502) 435-2593!