Credit Cards

Insurance You Don’t Need

November 12, 2005 By Jeffrey Strain 5 Comments

I had a friend come to me and ask what was the best type of life insurance to get for her child? She explained because she saw an ad on TV and it seemed like the proper thing to do. That got me thinking about the different types of insurance that most of us don’t need.

While everyone’s circumstances are a bit different, there are a number of areas where the risk for the situation the insurance policy is covering is quite small and suffering the consequences of the loss is a better risk than purchasing the insurance policy. That doesn’t mean that the unfortunate situation won’t happen. While the risk that something will happen will always exist, the risk is so small that you’re much more likely to come out ahead if you put aside the money you would be paying for the insurance into a savings account.

Here are 5 types of insurance that most people don’t need and shouldn’t pay for:

1. Life Insurance For A Child: These policies are sold purely on emotion and not on true need. The advertisements will appeal that “if you love your child…” you will have a life insurance policy on them. While the commercials may appeal to your emotions, the financial facts are that a loss of a child will actually relieve you of a financial commitment. It cost less not having a child than having one. Life insurance is meant to replace an income that is lost when one dies, and a child rarely has an income. Unless your child is the main source of income for your family, there is no need to have life insurance for him or her.

2. Life Insurance For Singles With NO dependents: for the same reason above, life insurance is to replace an income that is lost with death. If you are single and have nobody counting on the money that you earn, then there is no reason to have life insurance.

3. Comprehensive & Collision Auto Insurance For Older Cars: As your car gets older and is worth less according to Blue Book value, it no longer makes sense to keep the Comprehensive & Collision portion of your insurance. Why? Because when your car is damaged in an accident, the insurance company will only pay what it’s worth. If the Blue Book has it at $2000 and you have a $1000 deductible, the amount you’re paying for the comprehensive & collision is probably not worth the price. It certainly isn’t if your car is only worth a Blue Book value of $1000 since you’d be paying money for nothing.

4. Rental Car Insurance: You want to take a few minutes and call your current auto insurance policy and see what they cover if you rent a car. Then take a few more minutes and call your credit card company and see what insurance they provide if you rent a car using their card. Once you know both of these, you’ll know exactly what you need and don’t need when renting a car and chances are that means you can skip the high price rental car insurance the rental car company will be trying to sell you.

5. Extended Warranties On Appliances: You are almost always better off taking the money you’d pay for an extended warranty and placing it aside in a bank account. They are usually expensive and only are worthwhile for a short window (of maybe a year or two) between when the manufacturer’s warranty ends and the extended policy becomes more expensive than replacing the item yourself.

Credit Card Condoms

November 8, 2005 By Jeffrey Strain 3 Comments

I received an email the other day asking me what I felt was the most difficult part of climbing out of credit card debt. While there are a number of issues that need to be addressed when tackling credit card debt, the habit of using the credit card when you really shouldn’t is a huge contributing factor for most people.

The most difficult part of changing this habit is recognizing it in the first place. The fact that it’s a habit means that you probably use the credit card to purchase things without even giving it a second thought. So the challenge becomes learning how to make yourself realize when you are about to use your credit card in a way which is detrimental to your finances.

There are a couple of parts to this process. The first is recognizing that your current credit card habits need to change. Recognizing them and setting up a plan of what can and what shouldn’t be placed on your credit card is the first step. This first step, by itself, however, is usually not enough. You must also put into place a system that will help you take notice so you don’t fall back into your past habit before you realize it.

A simple way to remind yourself and help break the habit is to place your credit or debit card into a credit card condom (referred to as such because they help “protect” you from unwanted consequences when used properly). Basically it’s simply a paper sleeve that you slip around your credit or debit card that has some type of warning on the outside so that you have to think twice before using it. While this may sound so simple that it seems almost silly, it’s often the exact motivation a person needs if they are serious about decreasing their credit card debt (if you aren’t serious, then credit card condoms – or any other tactic – isn’t going to work).

While there are a number of sites that sell these sleeves for about $5, you can also print you own credit card condom for free and give it a try. If you use your credit card more than you should and are serious about trying to get your spending back under control, a credit card condom may be exactly what you’ve been looking for to help curb your spending. Sometimes it’s little reminders that end up being the most effective tool to help you establish your self discipline when trying to get yourself out of debt.

If I Had The Power….

October 16, 2005 By Jeffrey Strain 2 Comments

Running a website about personal finance and saving money, I get some strange emails from time to time and yesterday was one of those times. I received an email from a person looking for help with her credit report:

…I can’t do anything I want because my credit score is too low. I had to file for bankruptcy and now they won’t give me credit cards unless they are secured. But I can’t afford a to pay for a secured credit card, so I need a regular credit card. But my credit score is bad, so they won’t give me one. I try to explain, but they don’t understand and won’t give me what I want.

I need some help. I tried to make them understand, but couldn’t. So I need someone that can make them understand. Please call the credit bureaus and tell them to raise my credit score. Then I can get the credit card that I need and they will understand.

I am trustworthy. I always do what I say I’m going to do. If you do this for me, I will pay you. All I need is the credit card so I can get a cash advance and then I will pay you. I know you are trustworthy too. So please help me and make them understand…

Now, besides the painfully obvious point that this person has some serious money/budgeting problems, what I found amazing was that anyone would think that I have the power and influence to tell the credit bureaus what to do. Other than super hero type powers, being able to tell the credit bureaus what to do would be right up there with the top skill sets to have in the world of personal finance. It would certainly be a extremely lucrative power to have and I don’t believe I would be writing this blog if I did, but unfortunately I don’t (I’m sure the email writer will also be disappointed to find this out). For those that are looking for ways to improve your credit score, you’ll have to try doing it the old fashion way or you can search for someone else that possesses the magical credit score power.

American Express Launches Savings Credit Card

October 12, 2005 By Jeffrey Strain Leave a Comment

As I posted here earlier, Bank of America has launched a new savings program called Keep The Change with their debit cards where all purchases are rounded up with the difference being placed in your savings account. Now American Express Has launched a credit card that puts your cash rebate into a savings account.

The One from American Express is similar to their AmEx Green Card, but you are allowed to carry a balance. You receive a 1% cash back bonus, but instead of getting miles or points, the 1% is deposited into an American Express online bank (currently yielding 3.15%) account at the end of each month for you. They are also offering a $25 sign up bonus which you receive after your first purchase with the card.

While at first glance it may appear to be a decent card, it comes with 2 main problems. First, 1% is not much of a bonus these days with a number of cards offering 5% cash back bonuses for certain purchases. The biggest reason this “savings” credit card fails to impress, however, is that it comes with a $35 annual fee (waived for the first year). That means that you need to spend at least $3,500 just to break even and then you begin to earn your 1% savings.

The Credit Card Trap

October 10, 2005 By Jeffrey Strain 1 Comment

There’s an article over at Kiplinger – nothing really new, but I did find the first paragraph rather interesting:

America is the richest country in the world, yet, ironically, we have the highest percentage of people living paycheck to paycheck. A recent study from ACNielsen revealed that about one in every four Americans say they don’t have any spare cash. Without any wiggle room, it’s easy to see why so many people turn to credit cards to finance life’s little necessities.

There seems to be an overwhelming image that those who have large credit card debts do so because of extravagant spending. While this may be true for some, it’s not the case for all and more and more people are finding themselves in credit card traps that they never imagined they’d be in when the used the credit card to help tide them over in a tight spot.

Most people do have areas where they can cut expenses, but don’t realize it because they have gotten into a habit for so long that they have a hard time seeing what is a necessity and what is not. That is why it really helps to make out a budget and see where the money is going.

If you believe you’ve done everything you can, post your budget under an anonymous name in a money saving forum and let the member of that forum make suggestions. Most of them have been there and know where the excess fat lies. You’ll be surprised, but it can be done.

Once you relieve yourself from credit card debt, you’ll find yourself in a much stronger financial position and hopefully learn that those small tide over credit card charges cost a lot more than they appear.