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Two Credit Card Options to Avoid

Contrary to what the banks and card companies want you to believe, credit cards don’t exist for your benefit. They exist to make money for the company issuing the credit and there’s no doubt that they make money. As of November of 2011, American Express [3] reported a profit margin of 15% while Visa [4] report nearly 37%. Even with a 5.62% charge off rate [5], credit card companies are making money and it’s not just on what you charge.

You’ve probably received all of the mailings, e-mails, and automated messages trying to convince you to pay a little extra each month for some exciting service you must have but should you? Here are a few of those services that seem like a good idea but are far from it.

Credit Card Insurance

If you’re one of those people who like to be prepared for the unknown, insuring your credit card balance may seem like an easy way to assure that your credit card bills are covered if you get sick or injured but let’s crunch some numbers. The average credit card debt load [6] in the United States Is $15,799 and credit card insurance costs an average of $8.50 for every $1,000 of debt, that means that the average person would pay $127.50 per month assuming that the balance is $15,000.

On top of that, this insurance often pays only the minimum payment due each month and doesn’t allow you to use the card at a time when you may need it the most.

A disability insurance policy [7] which would pay you an average of 60% of your salary costs between 1% and 3% of your yearly salary. A person making $50,000 per year would only pay about $83 per month if the cost of the policy came in at 2%. A much better deal.

Identity Theft Protection

Another great idea on the surface. Identity theft is the 21st century crime that everybody fears so paying a small fee to protect yourself may be money well spent. Is it worth $15 per month or $180 per year? You already have protection against unauthorized charges. Providing you report it right away, your liability is a maximum of $50.

For $15 per month you’ll be alerted when unauthorized charges appear on your credit card statement and you’ll be compensated for legal expenses and lost wages while you fight to defend your good name.

I don’t know about you but my credit card company is pretty good about alerting me anyway. I recently flew through Charlotte, North Carolina and made a purchase at the airport. They called to make sure it was me. I can’t think of a reason I need to pay for what I’m already getting for free.

To avoid being a victim of large scale fraud, I keep a close eye on my credit card statement. If I see one strange charge and I report it right away, how much time and lost wages will I spend? You don’t need to spend $180 for somebody to watch for you what you can easily watch on your phone or laptop.

These are only two of the many services to avoid. Other than processing your payments, you don’t need your credit card company for much of anything else. Stick with that rule of thumb and put the money you would have paid for insurance and theft protection towards your balance.