3 Signs You're Better Off With a No Annual Fee Card

A credit card with an annual fee doesn't make sense for everyone.

Credit cards with annual fees can offer great benefits -- for the right kind of cardholder. But paying a card issuer just to be a customer definitely isn't the right move for everyone.

In fact, there are three big signs to look for that suggest a card with no annual fee would be a better fit for you. Here's what they are.

1. You don't spend much money

Credit cards with annual fees are sometimes worthwhile because they provide better rewards than comparable cards that don't have a fee. Or they can be a good fit if they give you statement credits for certain kinds of spending that justify their expense.

To cover the fee with bonus rewards or statement credits, though, you'll need to spend a fair amount on your card. For example, say you're looking at a card with a $100 annual fee that offers 2% cash back vs. a card with no annual fee and 1% cash back. In that case, the higher cash back offer on the first card might be tempting. But you'd have to spend more than $10,000 per year on that card for the extra 1% in rewards to add up to $100.

If you don't spend much, it's unlikely you will earn all of the rewards necessary to make up for the annual fee, much less to end up better off.

2. You don't have a lot of money

If you don't have a lot of money, you may not want to waste cash on a credit card with an annual fee. Paying the fee locks up your money with the credit card issuer, and you can't get that money back -- even if you need it for something else.

Now, it's possible to argue that if you get enough credit card rewards to cover the fee, it's worth paying even if you don't have a ton of spare cash. The problem is, if you end up hitting a snag that prevents you from earning all the rewards you planned, you can't get the fee back.

And unless the rewards are cash back, you could regret having the rewards rather than the money. For example, you might get a card that earns miles because you plan on funding a trip with it. But if you later experience a financial setback, you may decide you aren't going on vacation after all and could regret having miles instead of the money you put toward the card's annual fee.

3. You won't use many cardholder perks

Card issuers often justify the cost of annual fee cards by offering perks that go beyond rewards points. For example, many cards provide airline lounge access or offer early check-in at hotels or free checked bags.

If you use these cardholder perks, you can offset the cost of the annual fee and make it worth paying. But if you don't plan to take advantage of those perks, then you're effectively paying for something that doesn't benefit you at all.

When you're thinking about getting a new card, consider your specific financial situation and your goals to decide if an annual fee card makes sense. But be sure to think about this decision carefully if any of these three situations apply to you.