In most cases, the conventional wisdom on credit cards is to avoid paying an annual fee. An annual fee, that you pay for the privilege of borrowing money, seems like a terrible idea to many people. However, in some cases it might actually make sense to pay an annual fee.

Do the Rewards Offset the Annual Fee?

The first thing you have to ask yourself is whether or not the rewards offset the annual fee. Some of the credit cards that charge an annual fee actually have more generous rewards programs. Airline branded credit cards might offer passes to whatever executive club they have in an airport. The cost of access to such clubs can be relatively high; getting access can be worth the annual fee.

In other cases, cash back rewards cards with annual fees are more generous. For example, with the American Express Blue Cash Everyday card, the category with the highest cash back (groceries) offers 3% on purchases. Pay the annual fee for the American Express Blue Cash Preferred credit card, though, and you earn 6% cash back in the highest category — and there are no caps on the rewards you earn.

Making the Most of Your Annual Fee Credit Card

Of course, if you want to make the most of your annual fee credit card, you have to use it. You have to use it a lot. When you buy everything with the enhanced rewards, you are more likely to earn enough cash back that it offsets your annual fee, and still provides you with enough in rewards for a profit.

You also have to be careful to avoid carrying a balance. Many credit cards with generous rewards programs also come with higher interest rates. You can reap the rewards, but you will also have to pay higher interest if you carry a balance. If you are going to get a card that charges you an annual fee, make sure to pay off the balance each month.

Use your card on every day purchases, and then, when the bill is due, pay it off with the money sitting in your checking account. If you can leave the money sitting in an interest bearing account for the month, before you use it to pay off your credit card balance, all the better. While you won’t earn a ton of interest, you will, at least, earn a little more than you had before. This only adds to the benefits of using a card with a generous rewards program.

Bottom Line

If you aren’t going to use your credit card for most of your purchases, there really isn’t much of a reason to get a card that charges an annual fee. It’s just cost you more money. Cards with annual fees and generous rewards/perks programs are best suited to those who plan to use their cards regularly, and pay them off each month.

If you are a casual card user, who thinks the rewards are a nice bonus, get a rewards card with no annual fee.