How much do you pay in anuual fees?

[Anonymous]

Hi Omar.  You and I are doing the math a little differently, it sounds like, but of course you should make whatever decisions seem good to you. 

If I am understanding you right, your idea is that it makes sense to keep the card open for a full two years regardless of how much you spend on groceries, since you will still make a profit by so doing. 

My way of thinking is that this applies only to the first year.  My style would would be to project how much I will spend on groceries in year 2.  The profit earned in year 2 will be:

        Profit = 3% of grocery spend - $95

If Profit is < 0 then it makes sense to switch it to a BCE at Month 12.

While your approach is certain to get you a positive profit in the two year period, my approach would get you a greater profit (by assessing profitability before you pay the second annual fee).

In short, before you pay an annual fee on a card, project how much profit you'll make by keeping it compared with no annual fee alternatives.  (And factor in intangible joys like being seated before other on a flight, and other perks.)

As it turns out, your decision to keep the BCP will not create a loss at year two, because you estimate you will spend > $800 on groceries each quarter.  3% of $800 is $24, and thus $96 per year.  Just a bit over the $95 fee.  Unless, of course, you have a Freedom or Discover, in which case the value of the BCP is only 1% on those quarters, and hence you need a higher projected grocery spend for the BCP to be worth it in year 2.

[OmarR]

My $200 SUB is covering 2 years of annual fees.

Not one.

[Anonymous]

Well, the SUB for the card is a $200 award that you get at month 3.  The SUB is not a waiver of the first two annual fees.  If it were a waiver of the first two fees, then naturally it would make sense to use the card for whether groceries you might buy, regardless of how much you spent on groceries in year 2.

Because you get the $200 at month 3, however, you can then make a choice (at month 12) as to whether you wish to pay the second $95 annual fee.  This involves assessing how much profit you'll make (in year 2) by having it compared with how much profit you'd make using NAF alternatives. 

[Anonymous]

I am paying $134 in annual fee.

American Express Blue Cash Preferred - $95

Ollo Rewards - $39

My credit cards and their limits

- American Express Blue Cash Preferred - $6,000

- Bank Of America Cash Rewards - $500

- Chase Freedom - $1500

- Chase Freedom Unlimited - $1500

- Discover It - $750

- JCPenney - $1500

- Ollo Rewards - $1600

- US Bank Cash+ - $5000

[Anonymous]

Acquiring a SUB doesn't eliminate an AF.  If someone gets a CSP and grabs the $500 SUB after 3 months that goes along with it, that doesn't make the card a no AF card for the next 5 years.  If you want to say that the $500 SUB offsets the AF for the next 5 years that's fine, but the card still carries a $95/yr AF.

[OmarR]

---

@Anonymouswrote:

 If you want to say that the $500 SUB offsets the AF for the next 5 years that's fine.

---

This.

Otherwise, you are just arguing semantics.

Stick.To.The.Math.

[iced]

---

@Anonymouswrote:

---

@iced

I would go even further to say that the SUB should not be a determining factor in getting a card simply because it is a one-time thing that will quickly be diluted in terms of value compared to regular use of said card. It should be the recurring value that drives the decision.

---

I disagree with the above statement, as it won't apply to everyone.  I got the CSP just for the $500 bonus.  Had I continued using the card, it would have taken me a good 4-5 years to ever achieve $500 CB and it would be at the expense of greater rewards from other cards. 

---

My last paragraph in my original post would apply to you then:

If someone is a churner, then the SUB is the only thing that factors in since they are just basically doing pump-and-dump on cards for the SUB.

[Anonymous]

Just like that stock market  pump and dump 

[Anonymous]

It may not be clear to BBS and myself what you mean by "semantics."  We are indeed pretty focused on the math.

Since you liked his example of the $500 SUB with the $100 annual fee, let's see how that plays out. 

In your approach, the guy gets the $500 SUB and then keeps the card open for five years, paying $100 each year, regardless of whether the card gives him a yearly benefit worth $100.  At the end of that period he breaks even.

In the approach suggested by BBS and myself, the guy PC's the card to a no-annual-fee product on month 12 and saves $400 dollars.  He comes out ahead by $400.

Perhaps it will be easier for you to see what we we are saying if a credit card gave you a $100,000 signup bonus at month 4 but had a $4000 annual fee.  The approach you have been suggesting is to keep the card open for 25 years, since the issuer has just given you enough money to pay the AF for 25 years.  What BBS and I would recommend is to pay the first 4k, pocket the bonus, and then at Month 12 evaluate the rewards for the card.  Unless the card is earning you 4k a year more than other cards would, our recommendation would be to PC the card to a no annual fee card -- with a profit of 96k.

I am wondering whether the communication disconnect here is just a fundamental difference in how people think about money.  For many folks, certain kinds of money is a kind of windfall from the gods -- bequests, lottery tickets, IRS refunds, a Christmas bonus, etc.  That's in contrast to one's regular expected revenue, typically a paycheck.  Such "bonus" money is almost by definition for many folks immune to the same budgetary considerations as their regular money.  Because it's a bonus it can be used any way a person likes -- for vacations, restaurants, gambling, whatever. 

In your case, you are getting a bonus, so you are spending that however you like, and perhaps it seems bizarre to have someone suggest that the use of the bonus money be subjected to the same critical review as (say) one's paycheck.  If that sounds like it might be ringing true, then that explains it.  It's a cultural or worldview difference in how one thinks of "bonus" money.

[Anonymous]

Great thought-proviking post from CGID above.