Beating Broke

Personal Finance from the Broke Perspective

What’s Credit Insurance and How Can It Protect Me?

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This post in collaboration with Paul Brian

Credit card spending continues to increase in the United States. According to NerdWallet’s 2018 household debt survey, credit balances carried month to month increased five percent in late 2018 to surpass $420 billion.

The same survey found that around nine percent of Americans who have credit card debt don’t think they’ll ever be completely free from it. Considering the average revolving balance among households is nearly $7,000, the hopelessness makes sense.

While careless spending may be the reason for many people’s misfortunes, it doesn’t tell the whole tale. Aggressively high interest rates can punish any type of financial hardship, self-imposed or otherwise.

In these cases, things like credit insurance can prove valuable. There are many types of credit insurance, ranging from consumer to business needs. However, for the purpose of this article, we’ll discuss what consumer credit insurance is and the protections it offers.

What Is Credit Insurance?

Credit insurance is just as it sounds. It’s an insurance policy that a borrower has on their credit card. It’s a safeguard that pays off the credit card debt if something unexpected occurs that makes repayment difficult. The main types of credit insurance include credit life insurance, credit disability insurance, credit unemployment insurance, and credit property insurance.

How Do These Different Coverages Protect Me?

On a broad level, understanding how credit insurance protections work is quite straightforward. Credit life insurance pays off your debt if you pass away instead of your family being burdened by what you owe, while credit disability will cover your payments if you become disabled and aren’t able to work.

Less common types of credit insurance are unemployment insurance, which takes care of payments if someone is laid off; and credit property insurance, which protects property used to secure a loan if the property is damaged.

As ValuePenguin notes, any of these coverages can be taken out as a single or joint policy. A coverage type may also be worded differently depending on the institution offering it.

Do You Need Credit Insurance?

Credit insurance seems prudent to have, but how essential is it? It’s important to have financial protections in place that will cover you and/or your family should something unexpected occur, but doing so via credit insurance is typically the more expensive option to take.

This of course excludes situations in which credit insurance is required by the lender, such as in mortgage loans. However, this usually only happens when the borrower puts down less than 20 percent. This insurance can also be canceled once the borrower has built their equity over 20 percent.

As you peruse credit insurance terms and offers, evaluate the benefits and costs of life, disability, or supplemental unemployment insurance packages to ensure you’re getting something you actually need.

If you do find a credit insurance package you like, be sure to look at the fine print. It’s often a lack of preparedness and understanding that buries consumers in debt in the first place, which a quick scan of Freedom Debt Relief reviews unfortunately verify.

Like any credit card agreement, credit insurance policies are packed with jargon, small font, and exclusions. Ask questions until you know what you’re getting in a credit insurance policy. Ask questions like:

  • Does the insurance cover the entire loan’s entire term and balance?
  • Are there any exclusions that would impact coverage?
  • Does the lender have the right to change or cancel the policy at their discretion?
  • How long do the benefits take to be paid?

The last thing you want to do is pay for a policy monthly only to find that it doesn’t protect you in your time of need.

Simple Ways to Save Even When Money Is Tight

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For the 15 years my husband and I have been married, we’ve always shared just one car.  Actually, most of the time I’ve been the one with the car—first because I had to drive to work while he could easily take the train, and, once I became a stay-at-home mom, because I usually had the kids that I needed to transport while he could commute by public transportation.

While he’s been a good sport about this situation, the time has come to finally buy another car that he can use.

The problem?  We don’t want to take out a car loan because doing so would create a serious strain on our budget.  We want to pay cash instead.

But how do you save money for a car when you feel like there’s absolutely NO wiggle room in your budget?  Here are the strategies we’re using.

Save Cash Back from Credit Cards

Our credit card regularly gives us cash back.  For the first three months of 2016, we’ve earned just shy of $150 in cash back.  If we continue at this pace, we’ll have an extra $600 in cash back thanks to using, and paying off, our credit card each month for as many purchases as we can.

Save Whenever You Receive Discounts on Regular Expenses

This is my favorite way to save because there are so many opportunities to save this way!

For instance, at Christmas, we received a postcard from our car repair shop offering 10% off our next car repair.  I held onto that, and just last week we had a $284 car repair.  We saved $28 thanks to the postcard, and that money went right in our car fund.

We took a vacation recently and stopped by Denny’s on our last day when we had eaten up all the food we had brought with us in the cooler.  Our total was $39, but for some reason, the cashier decided to give us a $6 discount.  I put that money right in our car fund.

Our grocery store gives fuel rewards points for shopping.  For every $100 spent in groceries, you get 10 cents off your next gallon of gas.  If you buy a gift card, your reward points are for double that amount.  I send any of those savings to our car fund.  Just today I put 19 gallons in my tank, and I got 20 cents off per gallon.  I put that $3.80 into our car fund.

Save Change or a Specific Bill

I don’t use this strategy anymore because we typically use credit cards for our purchases, but when I was using cash a lot, I never spent the change and earmarked it all for a specific fund.  One time, I went several months saving all of the $5 bills I got and used them to pay down debt.

To be sure, none of these savings strategies is growing our car fund at an impressive rate.  However, we ARE saving something using ways we save in our everyday lives.  We’re consciously, physically setting aside our savings, which is a great way to save when your budget is tight and you feel like you have no wiggle room.

Do you save like this?  If so, what are your favorite strategies?

 

How To Give Your Credit Score A Makeover in 90 Days or Less

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If you want to get ahead financially, good credit can be a huge help. Lenders may be more inclined to give you a car loan or a home loan at a great rate when you’ve got a strong financial history. But how do you build better credit? And how long does it take?

Surprisingly, not as long as you might think. It all comes down to planning. If you’re wondering how to improve your credit score — and do it quickly — these tips can help.

Know your score

First things first, get your free credit score so you know where you’re starting from and how many points you’ll have to make up to reach your target score. For example, if your score is 650 and you want to raise it to 700, that’s a 50-point gap you’ve got to cover.

Check your score but also check your credit report. Your credit report includes all the information that’s used to generate your score, including your payment history, how much of your available credit you’re using, the age of your credit accounts, the types of credit you’re using and how often you apply for new credit.

Two things, your payment history and credit usage, have the biggest impact on your score. If you have late payments on your credit or high balances on your credit cards, those are two trouble spots you’ll need to work on right away if you want to fix your credit fast.

Target one debt

Credit usage just means how much of your available credit you’re using. The closer you are to your credit limits on your credit limits, the worse that is for your score. Paying one of your cards off, or paying down a significant chunk of what you owe, could trigger a quick credit score turnaround.

Pick the card with the balance that’s closest to your credit limit. Or, you can pick a card that has the lowest balance overall if you think you can pay it off in just a few months. The goal is to widen the gap between what you owe and your total credit line as much as possible.

There is an alternative way to do this. You could ask your credit card company to raise your credit limit, or you could open up a brand-new credit card account. Remember, though, that applying for new credit can ding your score by a few points.

Get caught up on past due payments

Paying your bills on time is the most important thing you can do to help your credit score. If you’ve fallen behind on any of your credit cards, loans or medical bills, getting paid up should be at the top of your to-do list. Once you’ve done that, focus on paying your bills on time each month going forward.

Automating your payments from your bank account is an easy way to do this. You could also set up payment alerts to keep track. Either way, the fewer late or missed payments on your credit, the better for your credit score in the long run.

If you are reading this and really, really want to improve your credit you have options.  One choice you could consider is something called tradelines.  What is a tradeline?  The term refers to the accounts listed on a credit report.  A tradeline is basically when you become an authorized user on someone else’s credit account.   And, yes can buy tradelines.   There are companies that will  help you.  You can also ask a friend or relative to add you to one of their accounts.