When Paying an Annual Fee for a Credit Card Is Worth It

Black woman using credit card and laptop

With a whole slew of awesome no-fee credit card options out there that also offer rewards (check out this piece for some of the best ones), you might wonder why anyone would ever pay an annual fee for a credit card.

As it turns out, there are some instances when coughing up fees for a credit card could be worth it. Nick Clements and Brian Karimzad, former bankers and co-founders of MagnifyMoney, point them out here.

Reason 1: You’ll earn enough in rewards and/or benefits to make the fee worthwhile

While it’s true that some no-fee cards will offer you rewards, these rewards might pale in comparison to those offered by cards that come with annual fees. For example, many airline credit cards charge an annual fee, but the card also allows you to check your first bag for free (a rarity on most domestic flights these days). “If you travel frequently, the free checked bag benefit could more than pay for the annual fee,” says Clements. Karimzad agrees. “If you find out a few weeks before your trip that you’ll need to check bags, you could save $50, $100 or more for you and your family by opening a card before your flight,” he added.

In addition, if you spend a lot every month on the card, the miles you earn could more than pay for the fee, as well.

Reason 2: You want the benefits, and you can afford them

Sometimes it’s worth paying a little bit more for certain luxuries, as long as they fit into your overall budget. “American Express is building beautiful airport lounges with amazing food and wine,” says Clements. “Again, if you travel frequently, you might want to have access to these facilities, and you might be willing to pay for them. So long as the fee fits your budget, and you want those benefits, you shouldn’t feel guilty paying for them.”

If you’re already paying for exclusive lounge access, then you can assume you’re probably paying too much, and paying an annual fee on a credit card would probably be less. “For Delta clubs, the Amex Platinum will get you in for the same fee Delta charges, but adds in over 800 other lounges and a $200 annual airline fee credit,” said Karimzad. “For American, the Prestige gets you into its club, plus over 800 others and gives you a $250 credit on airfare that takes the real cost of the card down to $200, versus $450 for a standalone club membership.”

Reason 3: You have a secured credit card and are building your credit

While there are some no-fee secured credit cards available now (check them out here), if you can’t find one that works for you, paying a small fee while you’re working on building your credit might be worth it in the long run. “You might have signed up for a secured credit card which has an annual fee to build your score,” says Clements. “For the first one-to-two years, while your score is building, you could be comfortable paying the fee. However, at the end of those two years, you should try migrating the card to standard, no-fee credit card.”

Reason 4: You’re paying for a balance transfer fee

Interest rates on credit cards can often be high, but doing a balance transfer gives you the opportunity to save a significant amount of money. “Most balance transfers will offer a low interest rate (typically 0%), and charge a one-time balance transfer fee (typically 3%, but can be higher for longer balance transfers),” says Clements. “The fee should not scare you away immediately. Instead, do the math.” A good rule of thumb in these circumstances, according to Clements, is if you can pay off your credit card in six months or less, it’s probably not worth doing a balance transfer. “But if you think it will take longer than six months, you will likely save a significant amount of money,” he said. To calculate exactly how much you could be saving by doing this, check out the MagnifyMoney balance transfer tool.

If you fit into one of those four categories above, then go for it — pay that fee! Otherwise, if you’ve done the math and it just doesn’t make sense, stick to the no-fee cards. You might not get as many rewards, but at the end of the day, if you don’t use them, then the fee just isn’t worth it.

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