Reader @JGR sent me question on Twitter recently that I think is worth discussing further. He is considering downgrading his Chase Sapphire Preferred credit card to the Chase Freedom card. Based on the amount of bonus category spend he puts on his Sapphire Preferred card, he calculates the value of the points he earns at $175 per year. This clearly off-sets the $95 annual fee, so if he wanted to keep the card, he would be justified in doing so since he gets more value in the form of points than he pays for the annual fee.
I advised him that based on his point valuation, as long as he really does get $175 worth of value out of the Ultimate Rewards points from the Sapphire card, keeping the card would make sense. However, this brought to mind another issue: Is the ability to generate $175 in points worth keeping a card with a $95 annual fee? If he did just downgrade to the Chase Freedom card (which has no annual fee), he would still have the ability to generate $300 cash back/30,000 points through their quarterly bonus categories each year – without an annual fee. Granted, he may not hit this target since the categories vary each quarter and may not match up with his spending. Ultimately, he is earning $80 worth of value from the Sapphire Preferred card each year ($175 worth of points – $95 annual fee = $80). Can he earn $80 worth of points or cash back from the no-fee Chase Freedom card?
That’s a question many of you will have to consider when it’s time to decide which credit card to put on the chopping block. Recently, I’ve become more focused on downsizing my wallet and holding onto cards that are absolutely worth the annual fee. I’ll continue to take advantage of great card offers as they come, but I’m organizing a core group of cards that will stay in my wallet for good. Thus, I’ve been careful not to over value a card’s benefits and get stuck with hefty annual fees.
Yes, the American Express Platinum card offers $200 in airline fee credits along with a range of benefits that some would argue are worth more than the $450 annual fee. However, those are benefits that I wouldn’t utilize if it weren’t for the fact that I was spending $450 to access them. Does that make sense? Sometimes we assign false value to things so we can justify paying for them, when really it puts us in the red. I don’t check bags if it’s going to cost me $200 per year and I’m too lazy to go down to the Global Entry office for the interview. So really, paying $450 for a card that has benefits (or rather, conveniences) that I otherwise wouldn’t pay for isn’t a wise investment for me.
The point of this post is to remind you to not get too caught up in how other people value credit card benefits. It’s something I’ve done before and I want to warn against it. Always consider the alternative and whether the perks gained from a credit card are worth paying, and whether you can find something similar elsewhere with a lower cost.
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