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Rebuilding your credit requires good financial behavior. You’ll want to make sure you’re paying bills on time and, once you do that, building a great credit score is a dance between using credit and keeping debt at bay. To that end, is it ever worth it to pay an annual fee for a credit card?

It can be, but only under some circumstances.

If I Have Bad Credit Will I Pay an Annual Fee?

If you are starting from the bottom of the credit ladder, your only credit card options may be secured cards. (Not sure where your credit stands? You can take a look at two of your scores for free, updated every 30 days, on Credit.com.) Secured cards require holders put down a cash deposit that serves as their credit limit. These cards are generally meant for people who can’t secure credit otherwise, whether because they have a poor or thin credit profile. But these cards do have the potential to be upgraded to unsecured cards after a cardholder demonstrates responsible use for a given period of time.

Many secured cards are available for no annual fee. Having bad credit doesn’t mean you have to pay for the privilege of carrying a credit card.

Do I Have to Pay an Annual Fee to Get Points or Miles?

Many rewards credit cards charge annual fees, but quite a few are available without these fees. If you pay your full balance every month, you can essentially earn money using those cards, whether in the form of travel benefits or cash back. If you aren’t in the habit of paying your card balance in full each month, paying interest might wipe out the rewards you earn.

Do I Have to Pay an Annual Fee for Other Credit Card Benefits?

Many cards with no annual fee include valuable benefits. The Citi Secured credit card, for example, offers travel accident insurance, trip cancellation and interruption protection, car rental insurance, extended warranty, damage and theft purchase protection and roadside assistance dispatch service, all for free. Many major credit card issuers offer similar benefits as a standard. (Full Disclosure: Citibank advertises on Credit.com, but that results in no preferential editorial treatment.)

However, if you want premium benefits, like free checked bags or a free hotel room every year, you’ll probably pay an annual fee.

Is an Annual Fee Worth It?

Simple math can help determine whether the benefits outweigh the cost of owning a credit card that charges an annual fee.

For example, if you and your partner expect to take one trip together each year on United Airlines, you might save money by paying for the United MileagePlus Explorer credit card. The card costs $95 a year to own. United charges $25 for the first checked bag for each passenger, but if you purchase your tickets with the United MileagePlus Explorer credit card, you and one traveling companion can each take one checked bag for free each way. Two people traveling round-trip together just once will save $5. Those savings come in addition to the card’s other benefits, including the opportunity to earn miles in United’s frequent flyer program.

Southwest Airlines also has a rewards credit card. The Southwest Rapid Rewards Premier credit card costs $99 a year. Southwest offers two free checked bags flyers. The cash advantage to this card is the 6,000 bonus points you earn each year after you pay your annual fee. That number of points would cover a Wanna Get Away fare under $99. By paying the annual fee, you’re essentially pre-paying for $99 worth of travel. So if you redeem the points for a Southwest ticket, you get the card’s other benefits for free.

What About Big Annual Fees?

The internet was abuzz when Chase launched the Sapphire Reserve card with an annual price tag of $450. Other cards are similarly expensive, like the United MileagePlus Club card ($450) and the Platinum Card from American Express ($550).

What do you get for that cash? The Chase Sapphire Reserve card (read our review here) offers $300 in automatic travel credits. American Express offers a $200 credit toward airline fees like in-flight meals. United Club cardholders get a $100 statement credit after their first purchase.

The Sapphire Reserve and Platinum Card also offer credits toward Global Entry or TSA Pre-Check application fees, but these come around only once every few years. It’s important you read the terms and conditions carefully so you know what these regulations entail.

Other top-tier benefits include more points earned per dollar spent, more value per point redeemed, more free checked bags, private lounge access, complimentary in-flight or in-airport Wi-Fi, complimentary breakfasts at certain hotels, hotel and car rental upgrades, high status in hotel loyalty programs and so on.

Are these benefits worth the cost? Only if you use them. Free checked bags are worthless if you don’t fly. Free Wi-Fi doesn’t mean much unless you were already planning to buy Wi-Fi. The same goes for free lounge access or car or hotel room upgrades.

The Most Expensive Credit Card

The most expensive credit card is the one you don’t pay off. If you carry a balance, you will generally pay more in interest than you earn in rewards. You may still come out ahead if you carry a balance just one or two months out of the year, but this scenario is rare.

If you are working to pay down debt, consider sticking with cards that have no annual fee. If you find a credit card that you think will save you money in the long run despite having an annual fee, track your use of the card and its benefits to be sure you’re getting your money’s worth.

Image: Geber86

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