Annual fee on your cash back credit card can set you back several hundred dollars a year. How do you know if you are getting your money’s worth? By just following three easy steps you’ll be able to tell whether or not your cash back credit card is worth having. Step 1: Calculate the amount of cash back you’d earn in a year. Each cash back credit card has a cash back percentage associated with it and the number usually ranges anywhere between 0.25%-5%.
For our example we’ll assume our credit card has 1% cash back and we spend $1,000 per month on it. That means we earn $10.00 per month or $120 in a year in cash back. Step 2: Calculate value of perks offered by your credit card. Perks include things like roadside assistance, travel medical insurance, lounge access, and so on. For our example we’ll assume our credit card gives us complimentary roadside assistance which otherwise would have costed us $100 per year. Step 3: Add the value of cash back and perks then subtract the annual fee. In our example our total cash back was worth $120 and our roadside assistance was worth $100 add these two numbers together and that gives us a total value of $220 in cash back and perks. Next we’re going to subtract the annual fee which you will assume is a $100.
By subtracting the annual fee of $100 from the value of cash back and perks which was $220 we are left with the net gain of $120. At the end of this exercise if you end up with a net gain like in our example then the credit card is worth having. If you have a net loss then you’re losing money and are probably better off without it. If you liked this video and found it useful make sure to like, subscribe, share, and hit the bell icon so you don’t miss any future videos. Also, leave a comment below to let us know what topics you’d like to be covered in the future.