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The Rewards Card Catch Everyone Forgets: Annual Fees

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When consumers are on the lookout for new credit card offers, they may be enticed by those for rewards accounts, which can give them some small benefits for their everyday spending habits.

But one thing that is becoming increasingly common for most rewards cards is that they now come with annual fees, and these can often be sizable, according to a report from Kiplinger’s Personal Finance. Often, these fees are in the neighborhood of $50 or $100, which may not sound like much over the course of the year, but can do a lot to chip into, eliminate or even overtake the amount a borrower may earn on their rewards account during that time.

Of course, some credit card issuers also give consumers the benefit of waiving the annual fee for their card in the first year the new account is open, and for this reason, that might boost the value of the account during that time, the report said. Further, many also now offer sign-up bonuses that grant consumers benefits equal to hundreds or even thousands of dollars worth of spending. This, too, should be considered in evaluating the actual cost of opening a new rewards account.

Further, there are other costs consumers will need to consider as well. For instance, rewards credit card issuers typically attempt to recoup the benefits they grant to consumers by applying higher interest rates to these accounts. For this reason, it is vitally important that consumers make sure to pay down as much of their balance at the end of every month as they possibly can – and ideally, they would pay it down in its entirety – to maximize their account’s value. Otherwise, the benefits they may have earned by spending a certain amount over the course of the month could be wiped out by the added interest charges they face.

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Consumers should generally try to weigh all the costs and benefits any kind of credit card account would provide them before making a final decision. This can be done by looking at not only the costs of these accounts themselves, but also previous spending habits on old credit cards. This will give a fuller picture of what costs a borrower might expect on any kind of account they open, and help them find the one that works best given their unique financial situation.

Image: bradleygee, via Flickr

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