No one likes annual fees. But annual fees on credit cards are a lot like income taxes. No one likes taxes, but you don’t decide which job you take based on taxes.

I hate paying taxes, so pay me less

If someone told you tomorrow, “I’ve got a terrific job for you. It pays a salary of $15,000. We understand the pay is low, but you don’t have to pay a penny in income tax,” you would probably pass.

Meanwhile, someone else offers you $70,000 for the exact same job, but you’ll end up paying $9,500 in income taxes. No one in their right mind would say, “I really hate paying taxes, so just give me the lower pay.”

Yet that is what people do all the time with annual fees on credit cards.

Many cards we recommend give you bonus value of $700+ for a first-year annual fee of $95. Meanwhile, most cards with no fee max out around a $150 bonus. In those cases, paying an annual fee is worth it because of the big welcome offer.

That annual fee becomes relevant after a year, since you won’t be earning a big signup bonus again. Here are a few guidelines for navigating that decision.

Start with cards you are most likely to keep

Keeping a card for years can improve your relationship with banks and support your credit profile. If you are new to the hobby, start with cards you can realistically see yourself holding long term.

Worthwhile cards with annual fees often include:

• A Chase Sapphire card, because it is the hub of your flexibility.
• Hotel cards that offer a free night each year for holding the card (certain Hyatt, Marriott, Hilton, and IHG cards).
• Airline cards that offer perks you actually use, such as free checked bags, priority boarding, annual points, or companion certificates.
• A Bilt card if you want to earn points on housing payments (note that you will need significant non-housing spend to unlock housing points).

The higher the annual fee, the more benefits a card usually offers, so you have to do the math to decide its worth.

When possible, downgrade instead of canceling

You can often downgrade to a no-annual-fee or lower-fee card. This can preserve your relationship with the bank and help you keep points you’ve earned in that system. The Chase Sapphire Reserve and Amex Platinum are two examples of cards that can be downgraded to a lower-fee option.

Keep cards for at least 12 months

You don’t ever want to cancel or downgrade a card before your second annual fee posts. It can hurt your relationship with the bank, and there is also the possibility they will claw back the signup bonus you earned or other benefits you used.

Call or chat shortly after your annual fee hits

Most banks offer a grace period, usually around 30 days, where they will refund your annual fee if you cancel or downgrade after the fee posts. It is also worth a phone call to see if they’ll waive the annual fee or offer an incentive to keep the card another year.

At the end of the day, canceling a credit card is easy and not damaging to your relationship with the bank if it is done properly. Our tool will remind you around the 10-month mark so you can weigh your options and make your decision.