When I meet with people, the biggest question I get asked is “Where do I start if I want to become debt-free?” The answer isn’t surprising, and there is no magical solution. In fact, there is only one possible place to start… wherever you are now is where you begin.

Since everyone is at a different place in their lives, you can only begin where you are, and not where your friend is. You have no other choice but to begin to tackle your specific situation. Only when you face it head-on and develop a game plan, will you start to win in life.

“A good plan implemented today, is better than a perfect plan implemented tomorrow.” – Gen. George Patton

The very first step we have each of our clients do is to develop a budget, or written plan of where their money will be spent in the coming month. After that, we coach you to set aside between $500 – $1500 as a beginner emergency fund. You must become current with each of your lenders before you start aggressively paying off your debt.

While having only $1,000 set aside for emergencies is not a lot, it is a beginning while you get out of debt. Use the anger of not having more saved to aggressively become debt-free, then save between 3 and 6 months of expenses for a fully-funded emergency fund.

You are already on step 3 of 7. To view the rest of the steps, click the link below and download the Financial Freedom Steps from the worksheets page. You can also download many other helpful tools that I have made available to you for free!

Before you start packing your bags for that much longed-for summer holiday, it would be wise to do a double-check on the terms and conditions of your credit card’s supposed ‘free travel insurance’.

Be warned – full travel insurance and the more common travel accident insurance offered by most credit cards are completely different forms of cover.

Most credit cards offer free Travel Accident Insurance but it is only for very limited cover, so it is just as well to check out exactly what you are covered for well before you leave for the airport.

Dig out your credit card paperwork and check the small print carefully – as I always say, ‘the devil is in the detail’.

Very limited and restricted cover

Travel Accident Insurance is a largely meaningless form of insurance and provides very limited and restrictive cover, in spite of the liberal use of the term ‘travel insurance’. It is like chalk and cheese compared to genuine travel insurance.

If ever there was a real contradiction in terms, this is it.

For instance, it offers little or no cover prior to your journey for such events as lost property, missed departures or travel delays and cancellations through no fault of your own.

Surprisingly, you will not be covered at the other end either.

Planes, trains and automobiles

The much-vaunted and free Travel Accident Insurance punted by credit cards is purely designed to insure you while you are actually en route to your destination, whether by bus, taxi, train or plane.

You will certainly want wider cover than that.

Even worse, the cover is really limited and you may find your credit card company will only pay out for a major accident such as death, permanent disability or the loss of an eye or limb.

Should you find on closer investigation that your cover is likely to be inadequate for your planned holiday; your first priority should be to look around for a comprehensive travel insurance plan from a dedicated travel insurance provider.

This should at the very least insure you for repatriation, personal liability, lost possessions, legal charges and medical expenses.

Be proactive and forearmed so you are not taken by surprise if the worst should happen.

Full holiday travel insurance

You may be wondering if there is a credit card that offers free comprehensive travel insurance.

The short answer is ‘Yes’!

Barclaycard is one credit card company who offer comprehensive travel insurance for holidaymakers booking through one of their tour operators, on condition that you pay for the holiday using a Barclaycard credit card.

Before going ahead and booking, it is important to weigh up the insurance benefits the credit cards claim to offer and take a good look too at the small print to check that the benefits are really as good as advertised.

To summarise, a credit card which gives you comprehensive and unrestricted insurance coverage is almost always better than a card which offers Travel Accident insurance only.

This Article is about how to become debt free. A dream that all of us have? No bills, no payments?

Surely each one of us at some point of time wished there would be no bills in the mail box that day. But it seems like bills and payment arrive in our mail box lightning fast. Can we have our life style set up a way that we can have the cake and eat it too?

I think we can. When things are getting rough We Must get tough.

These are what I did and reduce my monthly bills by %75:

1. I start looking at my complete list of bills and start categorizing them:
- A list; Must have items ” Necessary ”
- B list; Items that it’s good to have but it is not going to kill me if I didn’t have them. “Necessity”
-C List; items that they do nothing for me. “Luxury”.

Then I start one by one and ***** down each one of my bills and cut them down to pieces.

2. I lived in 3-bedroom house, so I moved to one bedroom.

3. I was driving a BMW I exchange it with a USED Toyota corolla. You get the picture. I keep things that I have to have in my life to make money and continue average life style. For my bills like credit cards and payments (like furniture loans, etc.)

I contact a consultant who are expert in dealing with these companies and settle your debt penny on dollar. Now that’s like money in the bank. Any way, it’s easy to sit and do nothing and hoping fury tale will knock on our doors. But a little action, sacrifices will do the trick.

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Your credit score can influence in a major way the amount you will need to pay on your home insurance, health and life insurance and also your auto insurance. The majority of insurance companies think having a bad credit score and rating means you are a great risk. They are skeptic about people having debts accumulated and bills unpaid. As long as unpaid bills are getting more and more, they will not award you with their trust and low insurance rates.

When deciding whether to issue a policy on your home, auto or life, the main part of insurance agencies is using credit information. Be prepared that they will check on your credit report when giving premiums and when having a poor credit report you will likely get higher premiums and insurance rates. People having bad credit report might pay 25 or even 50 percent more in auto or home insurance policies than someone having good credit scores. In case of auto loans the majority of insurance companies think if you have bad credit you are a bad driver and more; having money management difficulties mean for insurance agencies you are having further problems in proper life management.

Insurances are always based on risk; statistics and researches show that people who are having bad credit by not playing bills on time tend to file more claims, which naturally, are more expensive. Of course, not only credit report influence insurance companies’ decisions. Other factors, like age, location, types of home, and the car you are driving are also decisive factors.

The best thing you can do when having bad credit is to shop around, and although the majority of insurance companies will give you high premiums, find the one less worse and stick to that policy until your credit score is improving. Your insurance policy and premiums might get better as soon as your credit report is cleared, but that depends on the insurer. Those who are having excellent credit scores are lucky, but they are also offered different policies and premiums, so they should also ask and shop around until they find the best offer.

What is credit card insurance? In a nutshell, this is an insurance policy that gives the card holder protection if you ever lose your creditcard or worse, have it stolen. It is best for people that are worried about being held liable for costs especially if the wrong hands take full advantage of it. In the UK, the number of identity fraud cases via stolen credit cards has been scarily increasing.

Why should you avail of creditcard insurance? First of all, it is not only a hassle to report your credit card stolen; it can be a real nightmare if someone steals it. Reporting it to the credit card company can also be very time consuming especially if it was your wallet that contained not just one CC in it that was stolen. It can take you all day on the phone.

Who wants that stress? With a CC protection insurance policy, you only need to call one number to report your missing card and they normally work 24 hours a day, seven days a week! All you have to do is register your credit card details to the insurer and also provide them some other documents such as your passport or your driver’s license. It’s that simple to avail of credit card protection.

Another benefit of CC insurance is they save you the time and stress of calling each and every card company just to get your card cancelled. They do it for you! Because with the information you provided them, they can take charge of letting the creditcard providers know the status of your credit card, have it cancelled and provide you with replacement cards as soon as possible.

Not convince yet? Here’s another reason why should get credit card insurance: you won’t have to worry about paying for things you never purchased! Because with CC protection, you can be assured that when you fail to remember the specific time that you lost your card, you will only get charge by the CC company the first £50 of fraudulent use. Some won’t even charge you for anything!

And because most people nowadays rely on the purchasing power of plastic, when their credit card gets stolen, they are left without a penny. But when you have a creditcard protection insurance policy, you will also be provided with emergency spending money. This is not given out for free though. This is considered as either a form of cash loan or cash advance.

For a small annual premium, you can insure all your credit, debit and store cards. But before you avail of one, check to make sure that your home or travel insurance policies do not offer creditcard protection. Also check with your CC provider as most banks nowadays come with a card protection policy. You don’t want to pay for a credit insurance policy you already have! Overall it is a good idea to protect yourself from fraud by insuring your creditcards.

Free government assistance for credit card debt has not been very effective. The Chapter 7 bankruptcy protection is not exactly a free process considering the growing importance of lawyers following Congressional legislation and the non-profit Credit Counseling companies have not proved to be effective as a source of debt relief resources. The current American society can gain a lot from measures aimed at eliminating the unsecured debts of consumers, however, the corporate lenders have significant influence over government policies and the extend of this influence should be acknowledged when discussing this topic. It is a fact, as argued by conservatives and libertarians, that people are less likely to change behavior models if they perceive that actions don’t necessarily give results.

It is reasonable to believe that the unprecedented expansion, between the late 1990s and early 2000s, of the American economy was partly fueled by the credit spending obsession of the consumers. And it is also true that the foolhardy and unrelenting expenditure eventually led to the recession. Lending institutions and borrowers share a bond that is mutually antagonistic based on the tenets of capitalism. This may be true but there are extremely high credit card debts that are completely unacceptable. The government has, unfortunately, only been able to ignore the increase in such unsecured debt accounts and has not taken the necessary steps to subsidize free help for credit card debt even as the financial obligations of an average American household has increased to ten thousand after the continual growth in the last 25 years.

Consumer finance repair has an inherent and tragic irony, when a person realizes their spending habits have led to near financial disaster and look for alternatives they find that the most effective solution to reducing their unsecured debts will itself cost them more than what they can afford at the point. The idea of taking on further financial obligations is horrifying for those who are already struggling with daily expenses and monthly loan payments. Debt counselors expect payment for services rendered just like other financial specialists and trained professional will not provide free help either.

An increasing number of American consumers are looking for a resolution for the trouble they are facing with credit card debts and unsecured loans. They want debt management services that are effective and can pull them through the crisis. Most of these consumers seek federal or state government help first. But there is a certain amount of apprehension created by gossip and innuendos that make government grants and free credit debt help look like the wrong path to take. There are also a number of scams being operated through the internet and television commercials that has made the matter worse. The government, both state and federal, has launched programs to help deserving households with their debts, especially in metropolitan municipalities. However, the way things currently stand it is advisable to avoid seeking assistance from any public sector.

Getting into Debt is easy.

When you leave school, you can start building a credit record for yourself. The only way to do this is to go into Debt. You think you can handle it: paying off your credit cards every month, staying up to date with all your other monthly payments. You’re earning an income, living the high life and you can handle anything that life throws at you.

Then Disaster Strikes – the car breaks down or someone in the family gets ill, and you rapidly realize that you’re getting over your head. When the curve balls come your way, getting into debt can sometimes be the only way to cope.

All to soon, the Money coming in just doesn’t cover your monthly expenses; you find yourself going deeper and deeper into debt just to make ends meet. And everybody who was so nice about giving you the credit in the first place, suddenly turns nasty and starts making demands.

Nobody likes to find themselves in this situation, yet it happens more often than you realize. It not only affects you emotionally; it has an impact on everybody around you as well. Nobody like owing money and nobody likes losing sleep over Debt. But what can you do to get out of the downward spiral – so often a feeling of total despair hits you.

Eight Simple Step to get out of Debt.

Well here are 8 steps to actively follow to get the ball rolling and help get you out of debt quicker than you think.

Step 1: The first thing you have to do is to admit to yourself that there is a problem. It’s amazing how many people would rather ignore it, and just hope that it goes away. So, admit it, just say: “I’m in big trouble”. This step actually forces you to start looking at your problems.

Step 2: Stop making Debt! Right Now.

Step 3: Create yourself a Budget for every month and determine what you’re spending where. Look at your income and your expenses and determine how much you can spend on debt repayments.

Step 4: Now comes the hard part. Make a list of all your short-term debts and the full amount that is outstanding on each and every one of them. These include your credit-cards, clothing accounts and even the monthly contract with the video store. Anything that you have to make a monthly payment on where you’ve received credit. Don’t worry about your big debts like your Mortgage and Car Payments. We’ll get to those later.

Step 5: Input all of these debts into a spreadsheet and add them up. You’ll find this a big eye opener. Now, you have the real picture of what you truly owe. Only now will you be able to actively start attacking your debts. Sort your debts from the smallest debt to the biggest debt. The key is to start with paying the smallest debt off first and then the next in line and so on.

Step 6: Now you need to determine how much extra you can pay every month over and above what you are already paying in monthly repayments. Look at your Budget that you created in Step 3 and see if you have a bit of extra money available from you monthly income after all your expenses have been deducted. If you do – great. If not, see where you can make cuts, such as luxury items on your grocery bill. We’re not looking for a big amount, just that little extra.

Step 7: Start paying the extra money you created in Step 6 towards your smallest debt (in addition to the normal monthly repayment) and continue doing this every month until it’s paid off. Once that smallest debt is paid off, you’ll have some extra money available. Don’t spend it! Use he money freed up to pay off the next debt in your list of debts (once again, in addition to the normal monthly fees) until this one is also paid off. What you have here is the
snowball effect : Every time you pay a debt off, you’ll have bigger and bigger chunks of money available to pay the next one off quickly

Step 8: You’ve paid off all your small debts and should have quite a pile of extra cash available every month. I know it’s tempting to spend it, but the best place for that money to go is into your Mortgage – So invest your money into your own property. Why? Your mortgage is probably the biggest long term debt you will ever sign up for. For every bit of extra cash you pay into your bond in addition to your monthly payment, is offset against the capital amount of the loan. The less capital outstanding on your bond, the lower the monthly interest you have to pay over. And the added benefit is that you’ll pay the mortgage loan of faster. It can make up to 3 or 5 years difference. I’m not saying use all of it, but a big chunk of that money needs to go there.

These eight steps will help you get out of debt pretty quickly – It’s NOT easy, and requires you to become disciplined with your money. You can get out of the situation, but the only person who can help you out of the hole is You.

Take control. Follow these 8 simple steps. You will be on your way to become debt free in no time at all.

We live in an age of great economic uncertainty. From 2006 to 2010, bankruptcy cases filed in federal courts for the fiscal year 2010 were up more than 113 percent. Take into consideration record unemployment, troubled markets throughout Europe and rapidly changing currency policies, and it’s clear that businesses – especially those servicing foreign markets – are facing new found risks. In this environment, even the best of customer – those with the best of intentions and outstanding payment records – can struggle to meet their payments. In the past, when a customer defaulted, the result was simple: the customers’ cash flow problem was now their own.

Now more than ever, it’s important to protect your business from bad debt, particularly if your business depends on a small number of customers for a significant part of your revenue. Remarkably, many businesses are unaware of credit insurance and how it can help their business by mitigating risk.

Credit insurance, also known as accounts receivable insurance or business credit insurance, is an insurance product that protects businesses against bad debt. In simplest terms, if a business owns an accounts receivable insurance policy, and one or more of your customers covered by the agreement defaults, the insurance policy will pay. Typically, accounts receivable insurance agreements are structured to pay an agreed percentage of an invoice or receivable that remains outstanding as a result of bankruptcy, insolvency or protracted default.

In many cases, the insurance premiums are charged to the policy holder on a monthly basis and are calculated as a percentage of sales or as a percentage of all outstanding receivables. For businesses, this means that policies may be tailored to your unique needs, selecting the customers that your wish to insure.

How Credit Insurance Can Help Your Business

There is no shortage of benefits:
Protection against bad debt, particularly against the potentially devastating impact of one of your key customers defaulting on paying their debt. If your business is debt-financed, using credit insurance to protect your accounts receivable enables you to demonstrate more secure assets, often leading to an increased borrowing capacity and reduced fees. For example, in the case of international trade, credit insurance enables the exporter’s bank to consider otherwise ineligible foreign receivables as collateral. It allows companies to more rapidly expand their business into new and emerging markets in a safe and cost-effective manner. It makes you smarter, enabling you to increase credit lines to existing customers, enter new markets or extend credit to new customers armed with the information you need to make intelligent, informed decisions. And, credit insurance is vastly superior to letters of credit (L/Cs) in lowering the financial risk involved in international trade. Letters of credit are costly and a burden to customers, freezing a portion of their credit.

From GM to Lehman Brothers, the global recession has driven once untouchable stalwarts to their knees and into bankruptcy courts, passing the buck to their suppliers, triggering a painful domino effect that can still be felt today. For smart businesses who want to navigate international markets with confidence, credit insurance is an invaluable financial instrument.

Credit insurance is one of the most misunderstood and fraudulently marketed products in the field of personal finance. The types of insurance sold by creditors to debtors range from the old standard credit life and accident and sickness insurance to such worthless contracts as “life events” which will be explained below. Almost all of these policies are grossly overpriced and are a source of substantial profits for lenders and sales finance companies.

The use of insurance as a type of security for a loan or other extension of credit is not an inherently a bad choice. Both the creditor and the debtor can benefit from removing the risk of death or disability from the equation. If the reduced risk is a factor in providing a lower interest rate, or in basic credit approval, it can be a win-win situation. The problem arises, however, when the creditor intimidates or otherwise induces a customer to purchase an insurance product not for its effect on risk but as an additional and substantial source of revenue.

Normally insurance rates are set by the competitive market, which tends to hold rates down at least for the reasonably informed consumer who does some comparison shopping. Automobile insurance companies, for example, are highly competitive and the rates are seldom regulated. But in the context of an application for credit there may be no competition at the point of sale of the insurance. The creditor may be the only practicable source. The only “competition” is between insurance companies to see who can charge the highest premium and pay the highest commission to the creditor or its officers for selling the coverage. This tends to force rates up rather than down and has been dubbed “reverse competition”.

During the 1950s as consumer credit was expanding rapidly and many states had strict usury laws (laws limiting maximum finance charge rates) both lenders and sellers began relying on commissions from credit insurance premiums to pad the bottom line profits. Many engaged in selling excessive coverage (not needed to pay the debt if something happened to the debtor) and nearly all charged outrageous premiums, with 50% or more being paid to the creditor or its employees, officers or directors as “commissions” for writing the coverage. As incentives for paying as few claims as possible there were also “experience refunds” awarded to creditors, which sometimes raised the total compensation to 70% or more of the premiums. In addition, the premium was added to the loan or unpaid balance of the sale price and finance charges were charged on the premium.

Finally the National Association of Insurance Commissioners (NAIC) declared it had had enough of the consumer abuse and model legislation was drawn up and passed in nearly every state authorizing insurance commissioners to limit the amount and cost of credit life and accident and sickness insurance…the two biggest sellers in the field. In some jurisdictions the legislation had very little effect because the commissioners would not seriously exercise their new regulatory powers, but in others the rates came down almost immediately. Over a number of years where there was pressure from consumer groups the rates on these two products reached a reasonable level…with some states requiring that the rates produce a 50 or 60 per cent “loss ratio”….ratio of incurred claims to earned premiums….and limiting commission payments to creditors.

While this progress helped the consumer buying credit life and accident and sickness insurance creditors soon realized that it was easy to develop new products which were not regulated under the NAIC model law…products such as “involuntary unemployment insurance” to protect the consumer against job loss and “unpaid family leave” insurance to make payments in the event of a family emergency that required the debtor to have to leave his job temporarily.

Now, back to the question of whether you should purchase credit related insurance in connection with your next transaction, that really depends on the type of transactions, your individual circumstances and the kind of coverage in question. The first question to answer before deciding who to buy credit life insurance from is whether you need life insurance at all. The first step in the answer is “Do I already have life insurance in sufficient amount to cover this obligation and other needs?” If so it is obvious you don’t need any more, and the answer should be “No”.

Life insurance is justified when (a) there are dependents to be cared for after you are gone; (b) you have a moral obligation to a co-signer or co-maker or guarantor…possibly a family member…that you will pay at least your portion of an obligation, living or dead; (c) you own property or other assets which you want to leave to someone upon your demise, and unless this debt is otherwise paid the property may have to be sold to pay it; (d) you are buying something important “on time”, such as a home or an expensive vehicle, and don’t want it to be foreclosed or repossessed if you are not there to make the payments; or (e) you and a partner have invested heavily in a business that depends on both of you working, and you don’t want your partner to suffer a hardship if you are not there. There may be other reasons, but the point is that you must examine your individual circumstances.

You do NOT need life insurance if you have no dependents, own very little and are not leaving anything to anyone, and there is no co-maker to protect, because your debts essentially die with you. No one will have to pay them if you don’t. And if there is no money to bury or cremate your remains don’t worry. Something will be done with them because public health requires it. If you want an expensive send-off buy just enough to pay for the funeral and name a beneficiary with instructions to use it for that purpose so your creditors won’t try to grab it.

If you want to make gifts to others when you die, perhaps to make up for the mistreatment of them while you were around, life insurance is a very expensive “estate substitute”. It is better to put your money into savings than to pay it to some national insurance corporation on the hope that you will profit by dying. With life insurance you are essentially betting that you will die and the insurer is betting you won’t.

Assuming you decide you need life insurance, the next question is whether to buy it from a creditor or on the open competitive market. Most of the time it is best to purchase a proper amount of term life insurance payable either to a beneficiary, or to a trust for the benefit of minor dependents, or to your estate to be used to pay your last rites and obligations. If you have it paid to a beneficiary, such as your spouse or children, your creditors cannot claim it for the payment of your bills….unless you designate a particular creditor as a beneficiary to the extent of your debt obligation. No creditor has an insurable interest in your life except to the extent of your debt.

If you owe a mortgage debt on your home it may be wise to scale your term life policy to approximate the amount of your mortgage so it will be paid off for the benefit of your spouse and children if you, a provider, cannot provide. If you have a car note you need to adjust your total life insurance amount to discharge that obligation as well, so that whoever gets the car gets it free and clear. If you don’t care what happens to the vehicle don’t worry about the additional coverage. The creditor will take it and sell it and eat the balance. It is theoretically possible for a sales finance creditor to sue an estate for a deficiency after repossession but it very seldom occurs. It’s just too much trouble.

Aside from large obligations such as home mortgages and car notes there is usually very little justification for buying life insurance, and certainly not from a creditor. The premium rates on creditor-provided life insurance are much higher, as a general rule, than the rates for other life coverage.

Credit life insurance comes in three varieties…level, decreasing, and revolving. Level life insurance begins and ends with the same coverage over the term and is normally associated with single payment obligations. It is illegal in most states to sell level life insurance on installment transactions. Decreasing credit life comes in two sub-varieties…gross and net. Gross decreasing credit life begins with the “total of payments” (the principal plus all interest you will probably have to pay over the whole term of debt) and decreases by one monthly payment each month until it reaches zero at the end of the term. Net decreasing credit life starts at the “amount financed” and declines as the principal balance declines over the term. Usually net decreasing life is enough to pay the obligation because it tracks the remaining principal, unless you fail to keep up with the payment schedule and reduce the debt accordingly. Gross decreasing life will normally be excessive at the beginning and less so as the term continues. For example, if the principal is $10,000 and there will be $4000 in finance charges on a car note over a six-year term, the insurance will start at $14,000, but during the first month the debtor in fact only owes $10,000 plus a few days interest. This means that if the debtor dies during the term the excess coverage should be paid either to the debtor’s estate or to a named beneficiary. In some states creditors are limited to net decreasing life plus three or four months of payments just in case the account is in arrears at the time of death.

Auto accident deaths create a unique insurance situation where credit life is involved because the casualty insurance on the vehicle will often pay off the car note leaving the credit life insurance to be paid directly to the debtor’s estate as a cash benefit. Millions of dollars of insurance benefits have been lost because the surviving spouse was unaware of the double coverage on the note.

“Revolving account” credit life insurance usually involves a monthly premium computed on the basis of the outstanding balance being billed. The premium covers that amount for 30 days, discharging the obligation if death occurs before the next billing date.

Unfortunately, national banks that issue credit cards have developed a scam to get around the accusation of illegally high credit life premiums. Most of them if pressed would take the position that since they are a “national” bank the states cannot limit their insurance premiums, even if the state also limits premiums charged by state banks, but this legal position stands on shaky ground.

Many have issued their own policies in the form of “debt cancellation clauses” which are amendments to credit card agreements under which the account balance will be canceled if the debtor dies. But because of the risk that some state may clamp down on their rate-setting practices they “bundle” the credit life with up to a dozen other coverages, nearly all of which are not rate-regulated, so the charges produce a very large margin of profit. They won’t sell credit life alone, but require an “all or none” purchase of the various components such as credit accident and sickness, involuntary unemployment coverage, unpaid family leave coverage and even such weird products as “college graduation”, “having a baby”, “retirement”, “divorce” and other “life events”, each of which results in a month or two of benefits at the minimum payment level on the account. These bundled products usually cost upward of $1.00 per $100 per month, or twelve per cent per annum on top of the existing finance charge rate. Truth in Lending does not require that additional 12% to be reflected in the annual percentage rate, however, because the coverage is deemed “voluntary” and not part of the “finance charge”.

So the answer to the initial question is a resounding “maybe”…depending on your individual circumstances, the options available to you, and the cost of each alternative. Perhaps having read this you will know what questions to ask and make an informed choice.

Credit protection insurance is a good example of a consumer rip-off that affects millions of people, yet gets little attention in the financial media. Simply stated, you should NEVER buy “credit protection insurance,” or a “payment protection plan” or any other similar type of credit-related insurance. Let’s take a look at how these programs work and why they are a bad deal for the average consumer.

First, let’s dispense with the scam version of this insurance. With identity theft in the news so much lately, con artists have set up telemarketing boiler rooms to call people and try to scare them into buying worthless credit insurance products. Representatives will try to convince you that you’re at risk if someone gets hold of your card and starts making fraudulent purchases in your name. When they call, they may even pretend to be from the “security department” of your bank. In fact, they may actually be part of an identify theft ring, with the goal of getting you to disclose personal information over the phone. Or they may simply be trying to make a fast buck by selling you an insurance policy that you absolutely don’t need.

Under Federal law, you are limited to a maximum of $50 liability for unauthorized use of your credit card. If you didn’t authorize a charge, don’t pay it! Follow your credit card bank’s procedure for disputing bogus charges. You simply don’t need insurance to protect yourself from a situation that is already covered by Federal law!

Now, what about those “payment protection plans” offered directly by the big credit card banks? These are plans that promise to cover your minimum monthly payments for an extended period of time (usually 12-24 months) if you get laid off from your job, become hospitalized due to accident or illness, or become disabled. On the surface, a plan like this sounds like a pretty good idea. After all, how could you keep up with your payments if you suddenly lost your job or became too ill to work?

Of course, you should not be carrying balances on your credit cards anyway. If everyone paid their balances every month in full, then credit protection insurance would not even exist in its current form. You are charged for the insurance based on the amount of debt you’re carrying on the card, so if the balance is zero, then there is no fee. In fact, some bank representatives use this as part of the sales pitch when trying to entice people to sign up for that “free 3-month trial” on their payment protection plan! They attempt to talk you into adding the insurance now, while you don’t need it and when there is no cost, in the hope that one day you will start carrying a balance. By then, you’ll probably have forgotten you signed up, and you’ll wonder what those mysterious charges are on your statement every month.

If you do carry balances on your cards, credit protection insurance is still a very bad deal. To see why, let’s look at the math here. A typical loss protection plan costs $0.85 for every $100 of balance carried on the card. So if you’re carrying a debt of $5,000 on the credit card, it will cost you $42.50 per month to buy the insurance. Over the course of 12 months, you will spend $510 under this scenario. That’s equivalent to paying an extra 10% in annual interest!

A light bulb should be shining over your head right about now. Why not take that same $42.50 per month and use it to pay down the balance faster? Good question. When you consider that most consumers who have credit protection carry it year after year, without ever becoming eligible for a claim against the insurance policy, the amount of wasted money can add up to a truly staggering sum.

Continuing with our $5,000 example, with a typical minimum payment of $125/month, it will take more than 26 years to pay off the balance in full, at a cost of $7,115.42 in interest. By applying that extra $42.50 per month that would otherwise go toward the insurance, for a total monthly payment of $167.50, you’ll have the debt paid off in only 40 months! And you’ll have saved $5,435.22 in interest charges. It simply makes no sense to waste this money , especially when you consider that the credit protection plan is normally only good for 12-24 months anyway.

There’s another important factor involved here. Credit protection is also a bad deal because the eligibility requirements are so very restrictive. When you read the fine print, you’ll realize that there are all kinds of situations that aren’t covered. Let’s say, for example, that you’ve been fighting a medical condition for some time. So you buy the insurance thinking it’s a good idea. Eventually, you end up in the hospital for treatment and recovery. Can you breathe a little easier knowing your credit card payments are covered? Nope. Most of these policies have exclusions for pre-existing conditions. And there are numerous other loopholes that allow the bank to deny your claim under the policy. In view of the lousy math and the restrictive nature of this type of insurance, these programs should really be named “bank profit protection” instead of “credit protection insurance.” Instead of spending good money on an insurance plan that you will probably never use, you’re far better off applying that same amount toward paying off the debt early.