When are Credit Card Annual Fees Worth Paying?

Paying a fee to a credit company for the privilege of using their credit card seems ludicrous, right?

Why would anyone intentionally pay an annual fee?

With so many free credit card options it just seems insane to pick one with an annual fee.

On the other hand, if you actually take some time to take a closer look at some of the perks you get by paying an annual fee for a specific credit card you might find the perks outweigh the costs.

For the longest time I personally thought this was crazy, but I’m starting to come around.  Let’s dig a little deeper.

Paying an Annual Fee for a Credit Card

You have two big steps to take before you jump onboard with an annual fee.

Identify Your Credit Card Usage

Before you go applying for a bunch of credit cards you must first understand your own current spending habits.

Are you currently using a credit card in a responsible manner?  If not, do not pass go, do not pay annual fee, do not collect thousands in free airline miles.

However, if you are spending responsibly and using your credit card like it is a debit card — that is, putting your normal spending on it and paying off the card each month — then you can proceed.

You should next identify where you are currently spending money.

If your spending is primarily on a debit card you may want to use an online program like Mint to help you categorize your purchases.  If your spending is mostly on a credit card in order to maximize your cash back, most credit card companies will provide a year-end summary for you that provides a breakdown of your spending categories.

Knowing where you are currently spending money is key to identify what type of card you will get in the future.

Understand Main Areas of Perks

There are three main types of credit cards with focused perks you receive for being approved for the credit card and paying the annual fee.


Most airline credit cards require you to pay an annual fee.  Sometimes the fee is paid upfront (like with the Chase Southwest card) and sometimes they let you have the first year with a waived annual fee and get you on your first anniversary date.

Most credit cards tied to airline mileage programs will give you heaps of bonus miles for signing up and meeting a spending requirement.  It’s a great way to quickly ramp up your miles with that program.  You need to have a good understanding of what those points can be used for on that airline or its partners.

Not all airline miles are equal.

Related: See Some of the Best Airline Miles Credit Cards


Likewise, hotels will give you hotel points, free stays, or a combination of both for opening a credit card tied to their program.

Having an understanding of what each point is worth is critical.  You might think 25,000 hotel points is a great perk, but if it only gets you 1 night at a Tier 1 hotel in the program then you’re really not getting much.

Related: The Starwood Preferred Guest Card is a Great Hotel and Travel Card.

Exclusive Perks

Other cards require you to pay a fee to exclusive member benefits.

Cards like the Visa Black Card have a huge fee ($495!) but offer celebrity-like perks.

For most people these cards make little sense even if they could qualify.

Picking the Best Annual Fee Credit Card for You

credit card fees

Credit card fees can be well worth it depending on your usage.

Now that you know where you spend your money and which type of program makes the most sense for you, you have two things to do.

Pick One Card to Focus on Benefits

To start, pick just one single credit card so you can focus on reaping the benefits from the card.

If you find yourself flying a lot, pick the credit card from your favorite airline and see what kind of sign up bonuses you can get.  Many times the bonuses alone cover 2 or 3 years worth of annual fee costs.

Cancel Before Anniversary If Needed

Make sure you note somewhere when you were approved for the card.  Set a calendar reminder a week before that day in the following year to reassess your use of the card.

Did you get the use you thought you would?  Did the perks of card membership provide you any true benefit?  If so then you can consider keeping the card the next year and paying the annual fee on your anniversary date.

However, if you got an airline card thinking you were going to travel the world and it turns out you don’t like to travel as much as you thought you did, there’s no harm in canceling the card.  You will save yourself the annual fee, get to keep any unused airline miles tied to the frequent flyer program, and be able to move on.

Final Thoughts

Paying an annual fee isn’t always a bad idea.

It depends on our own personal usage of the credit card and the rewards program tied to it.  If you fly a ton and enjoy getting exclusive airline lounge access, then get the airline card and use it heavily.

Otherwise it may more sense to get a no-annual fee credit card with a great cash back program instead.

You’ll still be rewarded for your spending, you just won’t have to spend it with one specific rewards program because cash can be spent anywhere or even saved for the future. (And cash never expires!)

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Published or updated April 13, 2013.


  1. Tahnya Kristina says:

    This is a great post. I have always been against paying an annual credit card fee (and I work for a bank) but now I may be reconsidering it for the travel rewards. Great post, I am going to share it next Friday on our roundup at Dinks Finance. Happy Holidays Kevin.

    • As long as you use the perks the card gives then paying an annual fee is definitely worth looking into.

      Keep in mind though we’re talking premium cards here that give you extra for the annual fee (not one that charges you a fee and doen’t give anything back).

      And thanks for the share! I’ll keep an eye out for the article.

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