Fee-Based Credit Cards Can Be Good Deal for Some

HERE AT SMARTMONEY.COM we pretty much never recommend that consumers pay a fee for their credit cards. After all, with so many nonfee cards out there (including many that come with generous rewards programs), why bother?

"For nine out of 10 consumers, the math will not work out in your favor," says Curtis Arnold, founder of CardRatings.com, a web site that compares credit card offers.

But as they say, for every rule, there's an exception. There are indeed three specific situations in which it can be advantageous to pay an annual fee. In all cases, you'll need to be both a big spender and someone who pays off their balance in full each month, says Scott Bilker, founder of Debtsmart.com.) If that sounds like you, then here's when it may be worthwhile:

Your annual rewards are clearly worth more than the fee.
It's no surprise that fee-carrying cards offer sweeter rewards than their free counterparts. "Weigh your usage versus the value of the stuff you get versus the annual fee," suggests Bilker. Say you regularly charge $2,500 per month, and want to earn miles for Delta Airlines. With a Starwood Preferred Guest American Express (see chart below), you'd have 40,000 points at the end of your first year, if none of those purchases fell into a double points category. Using Starwood's generous mile-swap program, you'd have 50,000 SkyMiles — enough for two round-trip tickets within the continental U.S. Considering the value of those rewards is $1,000 (one mile is worth about two cents), the card's $45 annual fee is paltry in comparison.

You end up saving, rather than spending, thanks to cardholder perks.
Generous rewards for your purchases aren't the only benefit to fee-carrying cards — plenty offer discounts and freebies for just being a cardholder. Among the benefits of carting around an American Express Platinum (see chart below), for example, is a free companion ticket every time you buy an international business- or first-class fare with specific airlines. (A single business-class round-trip ticket from New York to Paris Feb. 15-18 on British Airways is $3,630 per person. With the complimentary ticket, that amounts to $1,815 per person.)

"If you know you're actually going to use those card benefits, that's a great deal," says Arnold. But be honest. If you can't take advantage of the perks in the coming year — say, in the case of that AmEx, you always fly solo — or won't use them enough to offset the fee, you're just wasting cash.

You can rack up rewards, redeem — and run — before the fee kicks in.
Credit-card issuers know consumers avoid annual fees whenever possible, so they'll often throw in a first-year fee waiver and bonus airline miles to sweeten the deal, says Tim Winship, publisher of FrequentFlier.com. "They're betting on you sticking around," he says. "But you could easily get the first-use bonus, bank those miles and then cancel the card before the fee kicks in." One caveat: Opening a new line of credit (or closing one) could cause a temporary dip in your credit score, so limit this maneuver to once a year.

We've collected five fee-carrying cards that can work out to your advantage: