When are annual fee credit cards worth it?

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Not everyone will consider an annual fee credit card to be worth the cost. But that fee could be worth it if you can get more value out of the card than you pay in.

Let’s walk through several cases where it might benefit you to pay an annual fee.


For cash back rewards

If you want to earn cash back from a credit card, you might not like the idea of paying an annual fee before you earn those rewards. Why would you want to pay an upfront cost that will require you to earn cash back just to break even?

In some cases, though, a cash back credit card with an annual fee might provide more value than a card with no annual fee. If you spend enough in certain high-earning bonus categories, you might be able to earn more rewards than you’d get from a card with no annual fee.

For travel rewards

If you want to maximize your travel rewards with a credit card, then there’s a good chance you’ll have to pay an annual fee. While it’s possible to get good value from a card with no annual fee, an especially powerful travel rewards credit card can carry an annual fee of hundreds of dollars.

But that fee is often worth it if you’re a frequent traveler and can earn enough in travel rewards to redeem for the cost of flights, hotel stays or other forms of travel. Similarly, a few travel perks may cover an annual fee by themselves, depending on how often you use them.

For earning a sign-up bonus

Some rewards credit cards offer sign-up bonuses that can cover the cost of an annual fee, or even multiple years of annual fees. As long as the spending requirement doesn’t fall outside of your usual habits, earning a sign-up bonus can be a straightforward way to make sure your annual fee is worth it.


What’s next?

No matter what kind of credit card you’re looking for, it’s not necessarily in your best interest to find a card with no annual fee. Depending on what you’re looking for and can afford, a card with an annual fee might give you more value in the long run.

Before committing to a card with an annual fee, just make sure you have a clear idea of a card’s pros and cons, and then settle on a card that fits your spending and redemption habits. No matter a card’s worth on paper, it won’t be right for you if you’re not able to get regular value from it. Otherwise, you might end up paying an annual fee with little benefit to show for it.


About the author: Eric Freeman is a writer and editor at Credit Karma, specializing in credit cards and credit scores and reports. He strives to make personal finance relatable for readers and to ground complicated issues in everyday e… Read more.