There’s that moment every year when a charge of $95, or maybe even $250 or $695, shows up on your credit card bill. It’s the annual fee, and it can make you second-guess your decision. Is this card really worth it? Am I throwing money away?

The reality is, having an annual fee isn’t good or bad in and of itself. It’s an investment. And, like any investment, how much it is worth is a function of the return you receive. A high-annual-fee premium credit card can be a big, fat waste of money if you don’t take full advantage of its benefits — just as it can be a wealth of value and bounty of convenience when used properly. This guide will fill you in on a simple step-by-step strategy for getting out of the guesswork and determining with confidence whether your card’s annual fee really is worthwhile.

Change Your Thinking: ‘Cost’ to ’Value’

The first step is to reframe the way you think about the annual fee. And don’t think of it as a mere expense, similar to something like a subscription you never remembered to cancel. Instead, think of it as a membership fee to an exclusive club. This club comes with a whole roster of benefits, perks and rewards that are meant to return many times over the cost of getting in — if you use them.

The most important question is not “Can I afford this fee?” but it means, “Am I getting more than the fee I’m paying from the benefits that I am actually utilizing?”

The Annual Fee Value Calculator: How to Do the Math Step by Step

Take out your card’s benefits guide and a calculator. We’re going to dissect the value into components we can see and count. How much do you actually use?

Step 1: Find Out How Much Statement Credits Are Worth

These are the easiest benefits to quantify, as they are cash replacements.

Travel Credits: Several premium cards provide you with an annual airline incidental, hotel or general travel credit.

Example: The Chase Sapphire Reserve® comes with a $300 annual travel credit. This credit is automatically applied to all sorts of travel purchases, including airfare and tolls. Paired with it is a statement credit up to $300 in travel purchases per calendar year, which brings the value of that annual fee down (with one single benefit) from $550 to just $250.

Hotel or Resort Credits: Cards such as The Platinum Card® from American Express frequently include statement credits for certain hotel bookings (like $200 back on a prepaid stay through Amex Fine Hotels & Resorts). If you were already considering a luxury stay, this is money.

Ride-Sharing or Dining Credits: They may come with monthly ride-sharing (including Uber, Uber Eats) or Grubhub dining credits. If you already use these services with some regularity, this is found money.

Calculation: (Amount of Credit per Month) x 12 = Value for Year

Step 2: Figure the Rewards gives a boost to

Premium cards frequently come with more generous rewards rates for certain types of spending.

Compare to a No-Fee Card: Say your premium card earns 3x points on dining and travel and a solid no-fee card gets you 1.5% cash back on everything.

To determine the “boost,” figure out how much more you make. If you get $10,000 a year in dining and travel:

Premium Card Earnings: 30,000 points ($1 per point = $300)

No-Fee Card Earnings: $10,000 x.015 = $150

Value of the Rewards Boost: $300 - $150 = $150 in additional value.

(Note: Point valuation is complex. We use a low figure for the cash value here for ease of discussion. (Seriously, the value can be a good bit higher if you’re willing to move points to travel partners.)

Step 3: Place Valuable on Perks You Actually Use

And that’s where it comes down to personal lifestyle. Do not measure a perk that you could use, but rather the ones you do use.

Airport Lounge: $50+ for a day pass, perhaps more. If you make two round-trip flights a year, and visit the lounge on each occasion, that’s another 4 visits. A conservative estimate is $40 per visit.

Value: 4 visits x $40 = $160

Free Hotel Night: Many hotel cards come with a free night certificate each year, usually limited to hotels that fall below a certain point tier.

Value: What would you be willing to pay for that room? If you redeem it at a hotel that would normally cost $250, that’s $250 of value. That’s the value if you can redeem it only at a $100 hotel.

Global Entry/TSA PreCheck® Fee Credit: $100 every 4-5 years. Annually, that’s about $20.

Elite Status & Benefits: Hotel elite status may include free breakfast, better room upgrades and late checkout. A free breakfast for two is worth $50 a day, so when you get it on a 5-night stay, that’s $250 in value.

Travel Insurance: Not that you should get a card for insurance, but it’s true value. Primary rental car insurance alone could save you between $15 and $30 a day. Trip delay insurance might pay for a hotel room and meals if you have to cancel your travels.

Step 4: Add Up the Total Annual Value

Now, adding all that together for a hypothetical card with a $550 annual fee:

Travel Statement Credit: $300

Rewards Boost: $150

Lounge Access: $160

Global Entry Credit (annualized): $20

Total Value: $630

Step 5: Compute Now for the final computation.

Aggregate benefit values $630 (-) annual fee $550 = net gain/loss +$80

In that hypothetical situation, the card has a net benefit of $80). You’re coming out ahead. If the result is a negative number, that card is personally costing you money and maybe shop elsewhere.

When You Should (and Shouldn’t) Hold On to the Card

Keep the Card If:

• According to your computation it is a net +ve from where it stands.
• The benefits substantially improve your life (a visit to the lounge lessens travel stress).
• You’re a big user of the card, and the rewards you get on it offset what you pay for it.

Consider Downgrading or Cancelling If:

• Your math provides a net loss.
• Your spending or travel behavior has shifted (you’re flying less, for example).
• You end up “manufacturing spending” just to use credits, making purchases you might not have otherwise.

Pro Tip: The Product Change

Before canceling any card, call your issuer to inquire whether you are able to downgrade to a no-annual-fee form of the card. This enables you to maintain your credit history and average account age, safeguarding your credit score while dodging the fee.

The Bottom Line: It’s an Individual Calculation

Isn’t that we get a premium card?It is not the case; the value of a premium card is personal. A digital nomad will get a lot of value from lounge access and hotel status, but if you’re a homebody then those are almost worthless. Even the most expensive card can be a deal for some people, and even the most meager annual fee can go to waste for someone who doesn’t use the benefits.

But by going from gut feeling to disciplined, numbers-based analysis, you can squelch that self-doubt. So you can make an informed decision about whether that annual fee is money well spent on your lifestyle — or a sign that it’s time to replace it with something less costly. Seize control, plug your numbers in and be sure that you always keep your credit card at work for you (and not the opposite).