When are credit cards with annual fees worth it?

Credit cards with annual fees are worth it when they offer rewards and perks that save you more money than you pay in fees. Having a card with an annual fee is an especially wise move when it will save you more than the best offer without an annual fee. When that stops being true, you can close the account. 

You can also use your credit score to help you decide. If you’re new to credit and focused on raising your credit score, it’s usually better to get a card with no annual fee, since it’s less likely that you’ll save more by paying a fee. If you have good credit or better, paying an annual fee on a credit card can unlock bigger initial bonuses, higher ongoing earn rates, and a variety of additional benefits. But you need to make sure you’re actually going to use these perks enough to get your money’s worth.

When Paying Annual Fees on a Credit Card Is Worth It

• When you can earn rewards worth more than the annual fee: Rewards alone can pay for your annual fee, depending on how much you charge to your card and how much you get back in the form of cash back, points, or miles. If your card gives 1.5% back on purchases and the annual fee is $95, for instance, you’ll have to spend over $6,333 annually to break even with ongoing rewards alone. And you’ll have to spend even more to compete with the best offers with no annual fee.
• When it offers perks that save you money often: Some cards with annual fees offer high-value perks such as annual travel credits, airport lounge memberships, TSA Pre-Check application credits, and free hotel nights. If you were planning to spend money on these things anyway, the annual fee on a credit card might start to seem like a deal.
• When it would save you more than the best card with no annual fee: If you crunch the numbers and determine that a card with an annual fee would save you the most money at the end of the day, even considering the fixed yearly cost, then go for it. Just make sure to reevaluate if your spending or payment plans change.

With all these perks, rewards, and bonuses, it can be difficult to determine how much you’ll actually save with a credit card, so we’ve broken it down into four simple steps to estimate whether you’ll earn enough for the card to be worth getting.

How to Figure Out If a Credit Card with an Annual Fee Is Worth It

1. Consider how much you spend. How much you spend overall and in the card’s major rewards categories will determine how much you can save with rewards.
2. Estimate how much you would earn. Cash back rates are usually expressed as a percentage of what you spend on a particular category, or for all purchases in general. Points and miles rewards are harder to estimate, though one point or mile is usually worth around 1 cent.
3. Evaluate the practical value of the card’s other perks. Many of the best rewards cards offer additional perks like free flights and hotel stays, airport lounge access, concierge services, and credits on certain types of fees and memberships. The perks on some cards can save you hundreds of dollars in total, but it’s good to be realistic about how many you’ll actually take advantage of.
4. Subtract the annual fee. The remainder is how much the card could save you, assuming you pay the bill in full every month and avoid finance charges. If you plan on carrying a balance for longer, you may want to consider 0% APR credit cards, which generally come with no annual fee.

You can use these steps to evaluate whether an annual fee credit card is worth it by deciding whether to apply for a new card or to keep the one you already have. If you’re concerned about your credit score dropping after you close your account, you can use WalletHub’s credit simulator to estimate how much your score will be affected. However, it usually isn’t worth keeping the card just to avoid the credit damage unless you’re applying for a mortgage or auto loan soon.

To get recommendations for cards, with or without an annual fee, sign up for a free WalletHub account, or you can also use WalletHub’s CardAdvisor for a more general sense of what type of credit card you should get.