When are annual fee credit cards worth it?

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In a Nutshell

An annual fee might be something you’d like to avoid when you’re looking for a credit card, but it’s not always a bad thing. In many cases, paying an annual fee can be worth it if your ultimate goal is to maximize your cash back, earn travel rewards or earn a valuable sign-up bonus. It might also be worthwhile if you’re new to credit or need to rebuild credit.
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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.

Most people would probably prefer not to pay annual fees for their credit cards. After all, who wants to pay an extra cost just for the right to use a card?

But weighing a card’s benefits and costs usually isn’t so easy. If a card charges an annual fee, there’s still a chance you can get more value from it than a card with no annual fee. Depending on how you plan to use the card, you might benefit from paying that upfront cost.

Let’s walk through several cases where it might benefit you to pay an annual fee. Just remember that your decision will ultimately come down to your specific needs and situation.

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 building credit

If you’re looking to build or rebuild your credit, a credit card isn’t a bad place to start. And while just carrying around a credit card with an annual fee won’t actually help you build credit, using any credit card strategically — such as by making on-time payments and keeping your credit utilization low — can.

But cards specifically made for building credit may come with an annual fee. And while we won’t blame you for preferring a credit-building card without an annual fee, not every issuer offers them — and even those that do might only approve you for a card with an annual fee.

If that’s the case, the opportunity to add positive credit activity to your credit reports could be worth the cost. And if you’re able to build credit, you might eventually be able to get approved for a no-annual-fee card, or one that offers rewards that outweigh the cost.

If you do end up paying an annual fee and want to make sure it doesn’t go to waste, focus on the things that can help build your credit profile — like keeping your credit utilization low, making on-time payments and considering other factors that may affect your scores.

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.