You’ve probably been approached by your credit card company about adding their insurance to your policy. They not only send you information in the mail and call you to solicit; they may offer this insurance through their customer services representatives (when you call to activate your card) as well as through spam and banner ads online. In short, they are really pushing for customers to add this insurance to their accounts. As pitched, it’s probably a small fee (maybe a couple bucks for every hundred you spend on your card) that is added onto your monthly bill, for which you’ll receive the benefit of having your credit card payments made by the company should you lose your job, become disabled, or even die. Sounds pretty good, right? Except that it’s not very good at all.
The first thing you need to know about these offers is that they are unnecessary. Unlike home insurance quotes, for example, which you seek out as a way to protect your assets, credit card insurance is pushed on you by creditors that hold your debt, mainly for the purpose of getting more money out of you (the industry boasts about $2 billion in yearly revenue from this upsell). Sure, they’ll tell you about the best-case scenarios for coverage, by which your payments will be made for you should you find yourself injured or ill and placed on long term disability, or should you lose your job (because of a layoff – firing doesn’t count). But they make it so difficult for the average person to collect that in truth, the only way you’ll really benefit fully is if you die (in which case your card will be paid in full, saving your remaining loved ones some expense).
Here’s the problem. In most cases, your creditor will only pay the minimum monthly payment, but they won’t do it right away. For starters, you have to prove that you are in a situation by which they are required to pay. This could mean providing all sorts of paperwork from doctors, employers, and so on. And even if it is decided that the company will pay out on your policy, it could take them quite a while to do so, resulting in late fees and additional interest accrual, meaning you’re actually taking on more debt. Further, it won’t cover any charges made after the fact. And of course, if you hold more than one card you’ll need multiple policies to cover each of them.
Finally, you should keep in mind that other insurance policies, while potentially costing you more, could also pay out quite a bit more (and come from more reliable sources). And of course, any money that you might be paying for credit card insurance could be put to even better use by funneling it into a savings account. If you have six months’ worth of salary sitting in the bank for a rainy day you probably won’t need the insurance offered by your creditor. The only real reason to get this type of insurance is if you’re otherwise uninsurable. And even then, you might be better off simply building up your savings (and giving up some of your credit cards while you’re at it). If it’s small business credit that you are concerned with, the DandB.com business directory can meet your company’s financial needs by tracking credit information on more than 29 million companies.
Facing continued inflation, low wages and job instability, that people are looking for ways to cut credit card debt is no surprise. Unfortunately, too many people consider only initial interest rates or bonus programs when they choose new credit cards. All too often, they find themselves in hot financial water that is just as deep and turbulent as what was drowning them before. Instead of reaching for a lifeline that reveals itself as a flimsy string, take a few extra minutes and double check some facts.
1. Why do you want a new credit card? If you are already “robbing Peter to pay Paul,” paying bills with a credit card that has now reached its limit, getting a new credit card won’t help your overall situation; odds overwhelmingly lean toward the opposite direction: If you use credit cards to pay living expenses, more credit will dig deeper holes. Instead, find other ways to reduce other bills, which will free funds to pay all your bills with your current income.
2. How will you use the new card? If you are planning to use a new card as an emergency reserve card and have the self-discipline and financial security to use it only for that purpose, have you looked closely at the annual fees you may incur? Are there interest rate hikes that will develop without regular purchases on the new card?
If you will use the card for small, multiple purchases each month and plan on paying the balance in full within each billing cycle, that’s fine, but ask yourself why you want another credit card for that purpose. Using a bank card, a debit card, ensures a zero forwarding balance, and you avoid the potential of interest accrual.
If you want it to build or rebuild your credit history, take care to avoid the reason you need to establish or re-establish credit: Some credit is good; too much credit just for credit’s sake is not: It’s actually a sign that is being interpreted as potential fiscal irresponsibility. Like fertilizer on a lawn, a little bit goes a long way while a lot could cause severe damage.
3. Why are you considering THAT card? Do you truly travel enough during non-peak times to take advantage of frequent flier miles? How many dollars or pounds or euros do you have to spend before that free ticket is allegedly free? Can you get a better “return on investment” seeking discount tickets and hotel bookings?
4. Do you have full control over maximum spending limits and interest rates? Many credit card companies elevate spending limits after a few months of reliable payment history, but that increase also raises interest rates on the additional balance availability. If you catch the escalation, don’t want it and refuse the interest rate hike, you might convince the issuing organization to lower the ceiling and rates again, but it’s often not easy. They want you to use it: They earn their money on transaction fees from the merchants, annual fees from the consumer and accrued interest rates. They’re hoping that if you have more available, you’ll spend more. That’s good news for them, but it’s not always good news for you.
5. Can you truly afford a new credit card? If you can transfer a high-interest balance onto a zero-interest-transfer card and pay the transferred balance off within a short time, the new card might be worthwhile, but if you cannot pay the transferred balance in full, know the extended interest rate. Compare the worse-case scenario with the interest and balance you already carry.
Bottom line: Make the best-informed decision possible.
Post written by Holly Miller, a writer for CouponCroc.co.uk. Shop online and save with promotions and other discounts to cut costs on all of your expenses.
You’ve probably been approached by your credit card company about adding their insurance to your policy. They not only send you information in the mail and call you to solicit; they may offer this insurance through their customer services representatives (when you call to activate your card) as well as through spam and banner ads online. In short, they are really pushing for customers to add this insurance to their accounts. As pitched, it’s probably a small fee (maybe a couple bucks for every hundred you spend on your card) that is added onto your monthly bill, for which you’ll receive the benefit of having your credit card payments made by the company should you lose your job, become disabled, or even die. Sounds pretty good, right? Except that it’s not very good at all.