Fee-based credit cards have benefits, but aren’t for everyone – MoneySense

Choose the right credit card for your stage of life

Credit cards with more perks and benefits are likely to have an annual fee, which could be as high as $799. However, most credit cards on the market have fees closer to $120 per year, she said.

Macmillan said consumers should look at where they are in their lives when applying for a credit card. For students and young adults, she recommended looking into a no-fee card, which can help you build your credit score without the added cost of a fee. Macmillan said secured credit cards – which require a cash deposit – work great for people building or rebuilding their credit scores. These cards are more accessible compared to other types of credit cards and do not require any monthly or annual fees.

For an individual in the early stages of their career or a young professional who may have a better understanding of their spending habits, a fee-based credit card could help unlock benefits that fit their lifestyle, Macmillan said.

But it’s important to do the math in advance, says Melissa Leong, author of Happy Go Money. “Write down the numbers. Write down the annual compensation and maybe calculate the earning percentage,” she said. Earning rate is the percentage or number of rewards you receive for every dollar you spend with the card.

Leong said if a credit card requires a minimum spending threshold to access its benefits and it encourages you to spend money when you might not otherwise, then it may not be the right choice for you. “You try to tailor the card to your life, not the other way around,” she said.

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Premium cards can be rewarding if you use them wisely

Understanding your annual spending habits is critical when applying for a fee-based credit card, says Jessica Morgan, founder and CEO of financial blog site Canadianbudget.ca. There are rules for earning rewards, she said. Some may offer higher rewards for spending money at a gas station, while others may have better benefits for those who often eat at restaurants or travel avidly. “If these are categories where you tend to spend money, then it might make sense to look at cards that match that level of spending,” Morgan said.

Macmillan said annual fee cards tend to offer higher reward rates, but they only make sense if you don’t have debt. “The premium credit cards tend to work best for people who use their credit cards often and who pay off their credit card balance in full every month,” she says. They are also only worth it if you use the benefits.

However, with the higher cost of living these days, more and more people are opting for cashback credit cards because they can help offset everyday expenses, Macmillan said.

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Leong compared fee-based credit cards to subscriptions, suggesting people set a calendar reminder ahead of the annual fee renewal to assess whether it’s still worth the extra money. “Ask yourself a few questions: Have I taken advantage of the benefits it offers? Is it worth the value of the fee? And do I carry a balance?” she said.

People often think that they are going to take advantage of the benefits of a payment card, but that does not always happen. Leong said if people have not used the benefits by the time the annual fee is renewed, it is unlikely to do so after the renewal.

Focus on paying off balances before chasing rewards

For those with balances, Leong said benefits should not be a priority. Instead, they should opt for a low-rate, no-fee card and limit new spending until the balance is paid off.

Many Canadians carry multiple credit cards. Morgan said having several can give a little more flexibility and backup. And if these cards are free, there are no additional costs. However, she cautioned against applying for multiple credit cards at once as it could affect your credit score.

“Be aware of how often you apply for different cards,” Morgan said. “The best way to benefit from a credit card is not to have to pay interest on it.”

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