Are Credit Cards with Annual Fees Worth It?

Assessing the cost of credit card rewards versus the cost of usage.

I flew to Texas over the holidays and during the flight, the airline heavily advertised their travel rewards credit card. The benefits they listed were enticing, but then right at the end of the in-flight commercial, they toss out that the credit card has a $95 annual fee. I immediately stopped watching and went back to playing on my phone. Even though we always fly with that airline, I try to avoid credit cards with annual fees.


Because in many cases, the rewards you earn and incentives on the card are not worth the $95 cost to use them. Based on how much we fly in our household, we’ll never earn enough miles to justify that cost. And that’s something you should consider before you apply for an annual fee credit card.

What is a credit card annual fee?

An annual fee is basically the yearly cost you must pay to use some credit cards. It’s one of the most common credit card fees you’ll find. Fees can range from the twenties to the hundreds, depending on which card you choose. In general, credit cards with annual fees aim to offer incentives that make those fees worth the cost.

However, you have to assess the cost and how much you use the card. If you don’t use the card enough or earn enough rewards, then you’re really just paying to use credit when you don’t have to.

When do you pay the annual fee on a credit card?

Many creditors waive the annual fee in the first year you open the account. Then, you pay the annual fee once per year. This usually occurs on or around the anniversary of the account. So, in the month the fee is assessed, you can have a bill to pay even if you have a zero balance. And again, fees can go as high as a few hundred dollars.

It’s worth noting that a few rare credit cards offer the ability to spread out the cost of the annual fee. It gets divided up between several billing cycles or you pay it throughout the year each month. However, one-time fees are the most common

Do all credit cards have annual fees?

No. In fact, many credit cards don’t have them. According to, credit cards with annual fees only make up about 25% of cards available. Most secured credit cards don’t have annual fees. So, if you have bad credit, you usually only need to worry about the deposit and not annual fees.

On the other hand, the best rewards credit cards tend have them. The more enticing the rewards on a credit card, the more likely it is to have an annual fee.

Evaluating if credit cards with annual fees are worth it

You should only get credit cards with annual fees when you use the card enough to earn rewards that exceed the fee. So, in the case of that travel rewards credit card, you’d need to earn rewards that exceed $95 for the card to have any value.

For something like a cash back credit card, it’s easy to assess value. Point rewards are also pretty easy – just see what you can buy with different point levels. Travel rewards can be trickier, because you need to know the value of the miles you earn.

Calculating the value of reward miles

Airline miles that you earn have cash value. It’s not much – about one to two cents per mile earned. You can check your credit card agreement to learn the exact value of the miles on the card you have. If you earn 5,000 miles in a year, the value of those miles is between $50 and $100.

If you fly internationally every year, then an annual fee credit card may be worth it

So, if your miles are worth two cents, then the annual fee for this card might be worth it. You saved $5 and get the fringe benefits of things like priority boarding or a free checked bag. But the card only makes sense if you fly at least 5,000 miles annually. Otherwise, you’re spending more money to use the credit card than you actually earn.

Why high annual credit card fees are bad

As we mentioned above, $95 is really pretty reasonable as far as fees go. There are credit cards with annual fees up to $500. That high of a fee is hard to justify unless you have large volumes of disposable income. Basically, the amount of debt you must run up to offset such a high annual fee is not something most people can afford to repay.

This conundrum is known as purchase acceleration. It’s where you use a credit card to either justify the cost or earn the next level of rewards you need. You’re spending for the sake of credit use instead of spending for a truly strategic purpose. It’s an easy way to run up debt that you can’t exactly afford to repay.

So, let’s say you find a credit card that has a $300 annual fee but offers 5% cash back. You’d need to charge at least $6,000 each year just to break even. But you need to make sure you can pay off that amount of debt within your budget. Ideally, you’d want to pay off your balance in-full every month; this allows you to completely avoid interest charges, which also offset the value of rewards.

Essentially, to break even, you’d need to spend about $500 per month and pay off that amount. Credit card debt payments should only take up about 10% of your monthly income. Doing the math, that credit card would only really be sensible for households that bring in more than $5,000 in income each month. If you make less than that and use a card with such a high annual fee, it’s a recipe for getting into debt that you can’t afford to repay.

Want to know more?

Visit Consolidated Credit’s Guide to Using Credit Cards Strategically for more information.