How To Avoid High Annual Fee By Converting Your Credit Card To Life Time Free Credit Card

Getting a credit card is not all; one also needs to be well versed with its working so as not to get hit financially. Among all, dealings with the fees and charges present on the card require more attention. Every cardholder wants to ensure that he/she pays minimum amount when it comes to the fees and charges, which is not possible in every case. For example, consider Rasika's case: 

Rasika has been using a credit card by a foreign bank since the last 4 years and has a better understanding of the entire manner of its working. But she is annoyed as she has to pay a good amount of annual fee on her card every year. On the other hand, her second card with a private sector bank is a free lifetime card, which does not require any annual payment. She is wondering whether there is an option by which she does not have to pay annual fees on her first card.

Analysis

Banks offering credit cards have been moving from one style of operation to the other over a period of time. Earlier most credit cards had an annual fee, but then with an effort to increase the credit card base many banks started issuing free credit cards. This had an adverse effect on the usage of the card and also on the earnings of the banks, thus they had to revert to their original strategy of charging annual fees. 

Rasika has both types of cards – one with annual fees, and the other, lifetime free. In case of the lifetime free card, there would have to be no annual fee that has to be paid over the entire time that she holds the card, which eliminates the entire issue of annual fees. The real challenge lies in reducing the cost on the card that has the annual fees. Rasika can cancel the card and go for a new lifetime free card but since she doesn't want to lose on to the benefits, like discounts offered at various hotels and resorts worldwide, she is getting on the card she wants to stick with it. 

Here are Rasika's options: 

First, she can negotiate with her bank each year and try to either reduce or eliminate the fee altogether. 

Second, she can request her bank to convert the annual fee-paying card into a free lifetime one. However, not all banks have this conversion facility. So, Rasika has to find out whether the bank with which the card is present is actually offering such a facility, and if the facility is available what would be the conversion price. If this price is not very high then only she should consider this option. 

What is conversion price and how the conversion takes place?

The conversion of a card with annual fees into a card that is lifetime free can be done by paying a one-time lump sum amount. This figure could be equivalent to around 1-2 times the annual fee that is charged on the card. This would translate to around Rs 1,000-1,500 on a normal silver card and around Rs 2,000-2,500 for a gold card. Most banks would fall within this range. By paying this amount, Rasika can settle the issue of paying annual fees each year once and for all and it will also reduce costs on her card. 

Action Point

If a cardholder's objective is to reduce the cost on his/her credit card then he/she has to select the lifetime free cards available in the market. However if one is already paying annual fees then it makes sense to solve the issue completely and try and convert the card to one where there are no fees to be paid in the future. This will prove to be cheaper over the long run and also save the cardholder the bother of having to tackle the annual fees issue every year.