# Is Your Credit Card Annual Fee Worth It?

When it comes to selecting a credit card, you have a seemingly endless array of choices. And with so many no-annual-fee credit cards, you may wonder what would make a credit card annual fee worth it.

The answer, as it turns out, is lots of things. From credit card rewards to sign-up bonuses to cardholder benefits and card membership, those costly annual-fee cards can actually be highly valuable investments.

Of course, if you’re not going to actually take advantage of all a card has to offer, it doesn’t matter how much potential value it has; you won’t reach it. Curious if a credit card annual fee is worth it for your favorite card? Hereâ€™s how you can find out.

## See how much the rewards are worth

The easiest way to get value out of the credit card annual fee charged by your credit card company is to make sure you earn enough rewards to cover the credit card fee every year. This will make sure you’re breaking even on the card whether you use all the benefits or not.

Itâ€™s common for cards with annual fees to offer more generous rewards than free alternatives. For example, with a travel credit card, you might get five times the miles for each dollar, compared with double miles earned using a cheaper card. If you get extra rewards, youâ€™ll need to know how many extra miles or reward points you receive compared with a card thatâ€™s free or has a lower annual fee. You also need to know how much youâ€™re likely to spend on the card.

Say, for example, youâ€™re comparing these two cards:

• A cash back credit card that has a \$95 annual fee and provides 2% cash back
• A rewards card that has no annual fee and provides 1% cash back.
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Now, divide the annual fee by the difference in rewards rate. In this case, \$95 / 1% = 95 / 0.01 = \$9,500.

So, youâ€™d need to spend \$9,500 per year to make up the cost difference between the two cards from the credit card annual fee. If you spend more than \$9,500 on the rewards credit card, youâ€™d be better off paying the fee for the better rewards. But if you spend less than \$9,500, the fee wouldnâ€™t be worth paying.

For cards that earn credit card miles or points, you need to consider how likely you are to actually redeem the rewards. If you’re not traveling enough to use miles frequently, you might want to look for a no-annual-fee travel card.

You also have to take the relative value of the rewards into consideration. For instance, are you likely to get \$0.01 per point by redeeming for statement credits or a gift card? Or are you more likely to redeem for travel rewards and net \$0.02 per point or more? Decide how much the points are worth in the most likely redemption scenario before you do the math to decide if the credit card annual fee is worth paying.Â

## The short-term value of sign-up bonuses

Sometimes cards that charge big annual fees come with generous credit card sign-up bonuses from the card issuer, such as enough welcome bonus points to score you hundreds of dollars in free travel. While you can consider these sign-up bonuses, the problem is you only get them once in your first year as a cardholder.

Depending on the size of the bonus, it could cover the credit card annual fee for a few years. After that, youâ€™re stuck deciding whether to cancel an expensive card — which could hurt your credit score by reducing your available credit limit and limiting your account history — or whether to keep paying the credit card annual fee.

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If you donâ€™t mind canceling cards, itâ€™s sometimes worth signing up for a card with a big fee from a card issuer that gives a generous sign-up bonus. But always make sure you can meet the requirements to earn the bonus. These requirements might involve spending several thousand dollars in your first few months as a cardholder.

## Don’t forget to add up the value of the cardholder perks

The final thing you should do when deciding if a credit card annual fee is worth paying is analyze the cardholder benefits. But make sure you’re honest about what you’ll use and what you won’t.

To get a true value of your credit card annual fee, consider only the cardholder benefits youâ€™ll actually use. For example, if the card offers \$15 in monthly statement credits for a rideshare service, but you never use rideshare services, don’t consider that cardholder perk in your calculations.

Travel rewards cards and luxury cards are the most likely to offer more extensive perks. Some common perks your credit card annual fee may unlock are:

• Airline lounge access
• Statement credits for rideshares or restaurants
• Free companion airline tickets
• Free checked bags for you and your travel companions on domestic flights
• Early or late check-in at hotels
• Free premium wifi at hotels
• Primary rental car insurance

Youâ€™ll need to estimate how much each cardholder perk is actually worth to you to see if the credit card annual fee is worth it. Some values may be easy to calculate, while others may be subjective.

If the card offers free checked bags for you and a guest on American Airlines, for instance, you could look up the baggage fee on American Airlines website. If it costs you \$30 to check a bag on a domestic flight and you check bags three times a year, this perk would be worth \$90 to you (or \$180 if each time was roundtrip).Â

But if you always fly first class and get to check a bag for free anyway, it would be worth \$0.

Youâ€™ll also have to decide if you want to count the value of perks that would be nice to have, but that you wouldnâ€™t otherwise pay for. You might like airline lounge access, for example. But if you wouldnâ€™t pay for it if you didnâ€™t have it free with your credit card, you may not want to factor that in when deciding whether to pay a credit card annual fee.

## Is an annual fee card right for you?

There are numerous card offers out there boasting long lists of benefits youâ€™ll get in exchange for paying a credit card annual fee. To decide if that card’s annual fee is worth paying, add up the value of the cardholder perks, the rewards program, and the sign-up bonus.

If your numbers exceed the credit card annual fee, by all means, apply for the card and enjoy! But, if the total value falls short of the credit card annual fee, well, you may want to keep looking. With these simple calculations, you can avoid wasting money on a card that doesnâ€™t make financial sense.