Annual Fee Credit Cards Can Be Worth It. Here's Why

It's estimated that Americans pay about $120 billion a year in credit card interest and fees, according to the Consumer Financial Protection Bureau. And those fees can run the gamut from late fees to foreign transaction fees.

Another fee you might encounter in the course of getting a credit card is an annual fee. And the cost of an annual fee can vary quite a lot, depending on the card you have.

At first, the idea of paying an annual fee for a credit card might seem silly. Why should you pay for the privilege of being a cardholder when plenty of cards let you do that for free?

But actually, in many cases, it makes a lot of financial sense to get a credit card with an annual fee. So before you write off the idea, crunch the numbers.

When an annual fee can pay for itself

When you open a credit card with an annual fee, that fee may be waived for your first year as a cardholder. But from there, you can generally expect to be charged that fee once a year in the anniversary month of you opening your card. And also, many cards will charge you that fee your first year as well.

You might assume that an annual fee is a silly thing to pay. But here's the thing about annual fee credit cards: They often offer more rewards, cash back, or other money-saving perks than no-fee cards.

This isn't always the case, but often, it is. And so if you use your card enough, your annual fee can end up paying for itself.

Let's say you're looking at a travel rewards credit card with an annual fee of $95. That's not a negligible amount of money. But what if that card also entitles you to a free checked bag on every domestic flight you take?

At Delta, you'll pay $30 for your first checked bag. So if you take four flights on that airline and save $30 each time by not having to pay to check a bag, you're ahead financially by paying $95 versus $120.

Now, let's say you're looking at a credit card with a $250 annual fee, but in exchange, you get a higher percentage of cash back in categories you spend in frequently, like gas and restaurants. It may be that you're able to accrue $1,000 back in the course of a year, as opposed to just $500 with a no-fee card. So in this case, you're spending $250 to get an extra $500 back, allowing you to come out ahead by $250.

There may be a better sign-up bonus, too

Not only might an annual fee credit card give you access to more cash back and better perks during the year, but you might also be eligible for a more generous sign-up bonus. For example, a card with a $250 fee might also give you an opportunity to score $400 cash back for meeting a certain spending requirement shortly after opening your card. That would allow you to make your money back and then some right off the bat.

Run the numbers carefully

Annual fee credit cards are not always a rip-off. Quite the contrary -- they can often make a lot of financial sense. But before you sign up for one, run the numbers and make sure you're likely to use your card enough to reap the benefits and make that fee worth it.

Let's say a big perk of an annual fee credit card is savings on air travel, like free checked bags. If you don't tend to travel a lot, that card may not be worth it. Similarly, a card that gives you 4% back on gas isn't necessarily a great deal if you rarely drive.

But in many cases, annual fee cards are a good deal. So don't immediately write off the idea of getting one.