Credit Card Information You Need to Know

I’m sure you’ve seen the sales pitch from your credit card issuer. It’s called credit card insurance or debt cancellation insurance and it sounds like it makes sense. If you lose your job or become disabled and can’t work, the debt on that card will go away. In the current state of the economy and available jobs, it’s tempting. Some of the offerings don’t even sound terribly expensive at $0.75 to $2 per $100.

Take a good look at those numbers.

Suppose the balance owed on your account is $5,000 and you’re paying the cheap $0.75 per $100. You’re going to pay $37.50 per month for that insurance. At the $2.00 per $100 rate your fee would be $100 per month. At least it seems that way but there’s more. Unless you pay that $37.50 to $100 per month insurance fee on top of your normal monthly payment, the fees will be added to your outstanding balance and you’ll be charged interest on it. If you’re paying only minimum payments, there’s a good chance that your outstanding balance will increase instead of getting paid off.

We’re not done yet.

In spite of what the sales pitches lead you to believe, your debt does not get cancelled. If you are out of work, the insurance will only cover your minimum payments. Make no mistake about it; you will still be responsible for the amount of the outstanding balance.

Getting them to pay might not be so easy.

Like any insurance, you are going to have to prove the circumstances that trigger your claim. You can bet it won’t be a matter of a phone call or a note. You’re going to have to prove that you’re out of work and you’re probably going to have to do it every month. By the time you get finished proving this month’s claim you’ll have to start all over for next month.

Is it worth it?

Only you can decide if you want to throw your hard-earned dollars at this kind of insurance but consider this. In 2003, the Center for Economic Justice estimated that consumers paid $2.5 billion for these ‘products’ but card firms only paid out $125 million in benefits. If you already have disability insurance, there’s a good chance that your credit card payments may already be covered. Before you sign on the dotted line for any credit card related policies, crunch the numbers carefully. You already know that card issuers will stop at nothing to get your money. Credit card debt cancellation insurance is just another cash crop for them.

Consider taking the fees you’d pay for the insurance and putting into a savings account where it will accumulate some interest for you and be available to make those credit card payments if you fall on hard times.