Insurance You Shouldn't Buy: Credit Card Insurance

This is one of the biggest scams going!

Every one of the credit card companies has tried to sell me this kind of "coverage" at one point or another. They carefully point out that I don't pay any premium for this coverage unless I'm carrying a balance. (Of course, carrying a balance at incredibly high interest rates is something that you should never do.) So, it seems like a good deal on the surface: the credit card company will pay my minimum payment if for reason of health or disability, I cannot. Further, I only pay for this coverage if I carry a balance, so it's "free" to me otherwise.

Here's the rub: if you are carrying a balance, then you pay premiums on the balance. Where do those premiums get charged? To your credit card of course! The premiums become another charge that inflates your balance.

In fact, if you aren't paying more than your minimum payment, not only do you pay premiums on your balance, you will pay interest on those premiums! The insurance premium becomes another thing that inflates your outstanding balance on your card.

What if the credit card insurance actually kicks in for you? Since it will only pay your minimum payment, it is hardly a strategy for your credit card balance to be paid off! In fact with most credit cards, if you pay the minimum balance only, it will take years to pay off a balance of as little as a couple of thousand dollars. So, having your "insurance" take over and pay your minimum payment for you actually guarantees that the credit card company will get as much interest as possible from you!

What should you do instead?

1. Make sure that you have proper disability coverage. The money from your disability insurance is yours to pay off your bills as you normally would, and isn't limited to your credit card payment only. This is a much better way to cover yourself, and it actually gives you more benefit for your premium dollar.

2. Don't carry a balance! Pay off credit card debt as quickly as humanly possible. This is debt that no one can afford.

3. If you do have too much credit card debt, consider refinancing and rolling that debt into your mortgage. It stops the high interest rate running your debt higher and higher, and gets your payments back under control. Once you have your financial situation stabilized, you can consider making additional payments against your mortgage, in order to save money on your interest on this long term debt.

Monique L. Attinger

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