Are Annual Fee Credit Cards Really Worth It?

You may be looking for a new credit card and wonder if a card that charges an annual fee is really worth it. There’s not one simple answer but here are some things to consider before making a decision.

1) Consider your spending habits.

Literally do the math. Go over your monthly bills and add up what you are actually spending. An annual fee credit card may be worth it if you spend heavily on credit cards (at least 2K – 3K per year). But if you spend much less than that, an annual fee card with generous perks and benefits may not be the best financial choice.

2) Understand Annual Fee Credit Cards.

Generally, when a credit card charges an annual fee, it offers a wide variety of rewards. These include earning cash back on purchases, miles towards free flights and upgrades, or points towards discounted travel such as airline tickets, hotel accommodations, or car rentals. Also, the rate of rewards may be significantly higher on a credit card that comes with an annual fee.

Frequently, annual fee credit cards will offer a signup bonus to new card members and many times will waive the annual fee for the first year. Signup bonuses may include cash back, points or miles given to you once you reach a certain spending threshold ( $500+) over a specific amount of time (usually first 90 days).

3) How do you determine if an annual fee card is worth it?

Ask yourself these questions:

  • How much do I typically charge on my credit cards each year?
  • How much will I be required to spend to earn a reward?
  • How long will it take me to earn a reward at my current spending level?
  • Will I earn enough rewards to offset the annual fee?
  • Will I carry a balance on the card? Remember that finance charges can quickly negate any rewards that you may earn.