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As the first anniversary of the Chase Sapphire Reserve℠ approaches on August 22, company execs are reportedly worried about how many people will cough up the $450 to renew the blockbuster card. Holders of the card and other prestigious ones like it face a vexing decision when a year is up and they ponder whether to pay another annual fee—but this time without receiving an eye-popping sign-up bonus.
Cards like these typically offer an introductory incentive of 50,000 to 100,000 points to soften the $400-to-$500 blow in that first year. They also come with big perks like annual travel credits and accelerated rewards that stick around after the first year to make the hefty annual fee easier to swallow.
“It can make sense in the first year, but then there’s that sticker shock that comes in the second year,” says Brian Riley, director of credit advisory service at Mercator Advisory Group. “Now they’re getting a travel voucher instead (of a bonus). Is that enough?”
Here’s when it is and when it’s not.
Who Should Keep a High-Cost Card for Another Year?
Without sign-up bonuses, some high-cost cards can be less appealing. But for some consumers, the math still works out in their favor.
Generally, these cards are best suited for high spenders, says Robert Harrow, ValuePenguin’s credit card analyst. For instance, someone who regularly spends more than $10,000 a year on travel and dining may benefit from these cards because of the accelerated rewards in those categories—even without a bonus. (Quick tip: The average American spends about 6% of their pre-tax income on travel and dining out.)
That also assumes you will use the travel credit each year along with the other benefits such as airport lounge access and concierge services. “What are you really buying with this as a consumer?” Riley says. “You have to look at the full value of card.”
Who Should Sign Up for a New One?
Of course, the calculation is different if you’re signing up for a high-cost card for the first time and the bonus is in play. In this case, the intro incentive may be big enough to compensate for the annual fee. Take a rare 100,000-point bonus, which can end up being worth $1,000 or more, depending on how you redeem the rewards. That by itself more than compensates for a $450 annual fee.
But a 100,000-point incentive is a unicorn. Most high-cost cards now are dangling between 40,000 to 60,000 points in front of potential customers. That makes any card offering 65,000 to 75,000 points stand out. While 75,000 points can be “a fantastic bonus,” Harrow says, it’s not for everyone. There are three factors consumers should think about before signing up largely to get the bonus.
Consider your credit score and whether you will need it soon to qualify for other credit, like a mortgage. Every time you apply for a new credit card, your credit score takes a hit. Do you feel financially comfortable spending the amount necessary to get the bonus? If it’s not within your normal budget, maybe skip the card.
Make sure you will use the other perks—such as the travel credit, lounge access and others—regardless of the sign-up incentive. “There are better benefits you can search for that don’t cost $450 a year,” Harrow says.
Who Should Avoid High-Cost Cards?
Both Harrow and Riley note that some credit cards with no fees or that waive the annual fee in the first year also offer good rewards programs and decent sign-up bonuses. They may make more sense for people who aren’t willing to shell out hundreds of dollars each year, who don’t need the perks of high-cost cards, and who don’t travel or dine out as much.
People who roll over their balances from one month to the next should also avoid high-cost cards. That’s because whatever you’re getting from the card—accelerated rewards, sign-up bonus or travel credits—is not worth the interest you’re paying each month on revolving balances. Instead, revolvers should focus on low-interest-rate cards.
“Keep in mind that a credit card is financial instrument,” Riley says. “You need to be real on what this card is going to do for you.”
This content originally appeared on ValuePenguin.