It often doesn’t make sense to pay an annual fee for a credit card. Plenty of credit cards are offered with no annual fee, and consumers often can’t justify paying an annual fee in terms of rewards or benefits that might be offered in exchange. Occasionally, however, a card offers benefits that truly justify the cost of an annual fee. Here are the circumstances in which the expense might be worth it, depending on the individual’s spending habits and travel patterns…

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What is an annual fee?

Annual fees are automatically charged once a year by the credit card provider to account for all the rewards and benefits of the card. Since many rewards cards are fee-free, it’s easy to wonder why others charge a fee, to begin with. As a general rule, however, the rewards cards with the biggest perks and signup bonuses are the ones that charge an annual fee. And if you want the most bang for your buck, you’ll be asked to pay for it. Very often credit cards with heavy benefits and perks come with a high annual fee in some cases up to AED 1500-2000

When is an annual fee worth it?

While there are no hard and fast rules that dictate when paying an annual fee is worth it, it’s fairly easy to tell. For the most part, paying a card’s annual fee is worth it if you are receiving more than you are paying. It’s also worth noting that most of the top rewards credit cards waive the annual fee for the first year, which gives you time to see if the added cost is worth the benefits. Most of the time, paying an annual fee is worth it if:

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  • You are earning enough rewards to offset the annual fee

If you are spending enough on your card each month to rack up plenty of rewards, then paying an annual fee might make sense. For example, it is pretty easy to find a credit card that offers 1% cashback on all purchases, or that offers a higher cashback percentage in categories that change from month to month. What’s not so easy to find is a credit card that offers a high percentage of cashback, month in and month out, on necessary purchases. To get a deal like this, you’ll likely have to pay an annual fee, but depending on your household’s spending habits, you could come out far ahead.

  • You are using your card’s ‘extra benefits’ often

If you are somebody who needs to travel frequently due to work or hobby then you might consider paying an annual fee for a travel or air mile credit card. These cards offer useful services and benefits for frequent travelers like heavy discounts on hotel bookings and flight tickets, free access to airport lounges along with membership in airline loyalty programs. Thus, if your travel patterns align with the incentives offered by a particular credit card, rewards can be substantial.

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  • The only card that you can get approved for has an annual fee

If you have poor credit, are trying to rebuild your credit score, and the only card you can get approved for has an annual fee, the fee could be money well spent. A better credit score can mean the difference between being approved for a loan or not. It can also mean substantial savings on your loan because people with higher credit scores generally qualify for lower interest rates. The key is to pay the annual fee only while you’re working toward a higher credit score. Once you’ve arrived, switch to a different card that doesn’t carry a fee.

If you fail to pay your balance in full every month or if you have a habit of making late payments, penalties, fees, and interest will probably overshadow any benefits you see from a credit card with a high annual fee. In other words, don’t expect to benefit from these deals unless you’re extremely responsible with credit. Also, keep in mind that if you must spend more than you otherwise would have to get these deals, they are not really great deals. Before you sign up for any credit card with an annual fee, calculate whether it really offers a net benefit in your specific situation. And think about the consequences before deciding to enter a new credit card agreement.