Not all, but most credit cards these days come with an annual fee that is charged by the credit card issuer. This is an additional cost that the applicant has to pay on a credit card and should consider once before applying for a credit card. All the credit cards do not come with an annual fee but only those cards charge an annual fee that provides the credit cardholders with generous rewards and cashback deals. An applicant might be excited to have a credit card but he should choose one depending on his spending habits. You might have opted for a travel credit card because of your travel routine but now your routine might have changed.
Now you spend more on groceries and departmental stores. Hence, you should reconsider changing your credit card rather than continuing to pay an annual fee on a travel credit card. An applicant is required to pay an annual fee on the credit card every year but the concerning question is when do you pay the annual fee on your credit card. But before going any further, let us first understand what an annual fee on a credit card is and why is it charged.
Credit Card Annual Fee – Meaning
It is a fee that the credit cardholder pays to the credit card issuer to remain a member of the credit card. The amount of the annual fee varies from bank to bank and card to card depending on what benefits and deals a particular credit card offers. The annual fee is also known as credit card fees or annual maintenance charges, paid annually by the credit cardholder to keep using the credit card.
Credit card issuers charge an annual fee because they offer various extra benefits to credit cardholders. The extra benefits may include features like cashback, reward points, lounge access, golf rounds, 24×7 concierge services, etc. The cost of having a credit card increases when you have to pay an annual fee on the credit card. Hence, the cardholders should make sure that the benefits they get from a credit card in the form of rewards and cashback should exceed the cost that they have paid towards the annual fee of a credit card. Generally, the more the annual fee of the credit card, the more benefits the credit card provides.
When do you pay the annual fee on your credit card?
All credit card issuers might have different policies when it comes to charging the annual fee on a credit card. The annual fee on a credit card is charged when you first activate your credit card account and then the credit card annual fee will be charged to you next year as a one-time charge on your credit card statement in the same month in which you got your credit card account activated. Once paid, you can freely enjoy the benefits of the card for a year, i.e., 12 months. Once after the expiry of 12 months, you will have to again pay the annual fee on the credit card to continue to enjoy the benefits linked to the credit card. Credit card companies often bill you the annual fee in the anniversary year on the same date and month in which you got your credit card account activated the last year.
For example – If you activated a credit card account on 5th June 2020, you will receive a bill on your credit card annual fee in the June 2020 statement and in every upcoming June statement.
But there may be some credit cards that do not charge any annual fee on the credit card under some introductory offers. In that case, you do not have to pay an annual fee for the first 12 months since the date of credit card issuance but post 12 months, you will have to pay the annual maintenance charges every year if you wish to enjoy the benefits of the credit card.
What if you do not want to pay the annual fee
A credit card with an annual fee may no longer be of use to you because of a change in your spending pattern. For example, you earlier used to spend a lot on departmental stores and grocery stores but over time your spending behavior has changed, and now you are a frequent traveler and need a card that provides you with travel benefits. Now, if you do not cancel your previous credit card (which you do not use anymore because of a change in spending pattern), you will have to pay the AMC on the credit card and this is nothing but an additional cost to you. So in such cases, you should consider the below-mentioned points to save yourself from paying unnecessary fees for a credit card –
Look for cards with an annual fee waiver option
Most credit card issuing companies come up with a spend-based offer on credit cards. With this offer, the annual fee on a credit card can be waived if the cardholder is able to spend a particular amount using his credit card in the previous year. Now if you use a credit card for almost all the transactions that you make using a credit card, you can easily achieve this spending limit and save yourself from paying the annual fee on the credit card.
Downgrade your credit card
You can always place a credit card downgrade request with the credit card company if you feel that the charges related to the credit card are out of your budget. Premium credit cards will charge a high annual fee because they provide you with exclusive benefits and deals. But if you are unable to pay such an amount, you can request the card issuer and downgrade your existing credit card to a no or low or no annual fee credit card.
Cancel the credit card
You also have the option to cancel your credit card if you do not wish to pay the annual fee on your credit card. Though cancellation leads to a negative impact on your credit score you do have an option if you do not wish to pay the AMC.
An annual fee is a fee that is charged by the card issuers to the cardholders for providing them with a variety of deals and benefits out of a credit card. Generally, this fee is charged in the same month of the next year, in which you got your credit card activated in the previous year. An individual will have to pay the annual fee on a credit card if he wishes to continue to enjoy the benefits of a credit card. But if you feel that the fees related to the card are on the higher side, you can look for other options such as downgrading or even closing your credit card.
Check here: List of No Annual Fee Credit Cards in India