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Is your credit card’s annual fee worth it? Since there are still many credit cards available without an annual fee, this is an important question for all cardholders. To find out if your card’s annual fee is worth paying, you have to consider your spending habits, add up the value of the rewards and benefits you could receive and compare this number to the price of the annual fee.

How to Calculate the Value of a Credit Card

Figuring out your credit card’s value is not as easy as it sounds since the amount of the rewards you receive will depend on how often you use it, and whether you frequent merchants or vendors where you can earn extra rewards. (For instance, an annual fee credit card that offers bonus cash back at gas stations may not truly benefit someone who doesn’t own a car.) In addition, it’s also worth considering how annual fee credit cards compare to similar rewards credit cards with no annual fee as opposed to just cards that don’t carry rewards at all.

Remember, though, rewards credit cards are generally best suited to cardholders who don’t tend to carry a balance. Otherwise, all those points, cash back or miles you earn can be lost to interest. Also, when comparing credit cards, it’s always a good idea to check your credit score to understand which products you’re more likely to qualify for. You’ll also want to be sure your credit can handle a small ding, as each credit card application generates a hard inquiry on your credit report. (You can see your credit scores for free every 14 days on Credit.com.)

Having said all that, let’s use a few rewards credit cards to illustrate when an annual fee may be worth paying.

Crunching the Numbers

A good starting off point in your decision-making process may be to calculate how much you would need to spend to, at the very least, recoup the annual fee associated with a card you are considering. Take Barclaycard’s Arrival Plus World Elite MasterCard as an example. It offers double miles on all purchases, and each mile is worth one cent as a statement credit towards travel expenses. It also carries an annual fee of . Once that fee does go into effect, however, cardholders would need to spend $4,450 each year in order to recoup it in travel statement credits. (In mathematical terms, 2% of $4,450 equals $89.)

The card does also let your earn 5% miles back every time you redeem miles that can be put towards future redemptions, but as a base metric, if you spend well over $4,450, pay off balances in full and, of course, travel frequently, the card could be a good fit for you.

But you may want to consider, too, that Barclaycard offers a no-annual-fee version of the Arrival card that offers double miles on all travel and dining purchases, one mile per dollar spent elsewhere and 5% miles back when you redeem as well.

You can apply this type of number crunching when comparing cards with different issuers, too.

First, you will want to break down each of the rewards categories a particular card offers, and compare it to the rewards you would receive from a card with no annual fee to see how much additional cash back you might earn. For example, if a card offers 5% cash back at grocery stores, you would only receive an additional 3.5% cash back beyond what you would earn by using a no-annual-fee rewards credit card that earns 1.5% cash back on all purchases, such as the Capital One Quicksilver (you can read our review of the Quicksilver here).

Since that extra cash back only applies at grocery stores, you would multiply that 3.5% by the amount of money that you typically spend there during the year. So, if you spend $50 on groceries a week, then you would be spending $2,600 a year and earning an additional 3.5% rewards on that amount would equate to $91 of benefit beyond a card that offers 1.5%. So, if such a card had an annual fee of $95, it would not be worth it in this case.

But let’s say that this card also offered 3% cash back on gas, too. Then, you would have to factor in what you spend on gas, and multiply it by 1.5%. So even if a person spent $100 per month on gas, or $1,200 per year, then that person would earn another $18 per year in rewards, and the card with the annual fee would be worth it, if only slightly.

Considering the Ins, Outs & Extras

Sometimes the ins and outs of a credit card rewards program can make it a bit trickier to assess whether a card’s fee is worth your while.

The United MileagePlus Explorer credit card, for instance, offers one mile per dollar spent on most purchases, and double miles per dollar spent on United purchases, with an annual fee of $95 (waived the first year). Other benefits include priority boarding privileges, two-day passes for the United Club, and a free checked bag for the cardholder and one companion each time they fly. While it’s hard to put a price on priority boarding privileges, United normally charges $25 per checked bag, and $50 for a United Club day pass, so you could easily recoup the annual fee if you take advantage of these incentives.

In addition, the value of the miles you earn with many airline credit cards may vary based on what you might have paid for the award tickets you book. For example, a discounted domestic flight in economy class may only cost $250, and require 25,000 miles, yielding a value of just one cent per mile. However, a business class ticket to Europe might be worth $6,000 and require 120,000 miles, resulting in a value of five cents per mile earned. So when determining if the card is worth its annual fee, the old saying sometimes applies, “your mileage may vary.”

Finally, keep in mind, too, many credit card issuers offer sign-on bonuses that often sweeten a card deal. These bonuses let you earn extra rewards if you charge a set amount of money on the card within a certain timeframe. The bonuses are typically a one-time incentive, but particularly lucrative ones (within your normal spend thresholds) may be worth factoring into your decision-making process.

Note: It’s important to remember that interest rates, fees and terms for credit cards, loans and other financial products frequently change. As a result, rates, fees and terms for credit cards, loans and other financial products cited in these articles may have changed since the date of publication. Please be sure to verify current rates, fees and terms with credit card issuers, banks or other financial institutions directly.

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