Hey, it’s Jeremy from Ochsner Insurance, and welcome to Cyber Monday! Today, we’re diving into something that’s not only a financial issue but also impacts your insurance—credit card debt.
Credit Card Companies and Interest: What You Need to Know
According to a recent J.D. Power survey, more than half of U.S. credit card users don’t pay their balances in full every month. In fact, 51% of Americans carry a revolving line of credit, meaning they’re paying interest on unpaid balances. And trust me, that interest adds up fast—often at ridiculously high rates.
Credit Card Rewards: Not Always the Perk You Think
When you use your credit card at a business, something called “interchange transference” happens. The card issuer makes money every time you swipe, sometimes as much as 3.15% on a transaction. Credit card companies entice you with rewards programs to get you to spend more. According to studies, you could be spending 10-15% more than you would if you were paying with cash, all because of those tempting rewards.
While you may think you’re beating the system with rewards, the truth is that you’re likely spending more overall.
The Impact of Credit Card Debt on Your Insurance
Now, why does this matter for your insurance? Here’s the connection: in states like Nevada, insurance companies use something called an insurance score, and a big factor in that score is your credit score. If you’re one of the 51% of Americans who carries a credit card balance each month and your credit score drops, your insurance score goes up. And just like in golf, you want a lower insurance score.
Insurance companies see a lower or lowering credit score as a red flag. They worry that if you’re falling behind on your credit cards, you might fall behind on your insurance payments too. And when your insurance score rises, so do your insurance rates—whether it’s for your auto, home, or umbrella policies.
Alarming Statistics
Here’s another number that should concern you: $1.13 trillion—that’s the current record for U.S. credit card debt, as of earlier in 2024. As this debt snowballs, many Americans are caught paying 19%, 25%, or even 27% interest on their credit card balances. The snowball effect of interest makes it harder to pay down the debt, which in turn affects your credit score and, yes, your insurance rates.
How to Manage Your Credit and Lower Your Insurance Rates
To get control over this, start by setting a budget. Tools like the Every Dollar app or other budgeting apps can help you track your spending and make sure you’re sticking to a plan. Paying off your credit card balances every month can not only save you from high interest rates but also help you lower your insurance score, which in turn could lower your insurance premiums.
If you’re tempted by rewards programs from credit card companies like CapitalOne, Chase, Delta-American Express, or Citi, remember that these programs are designed to make you spend more. Even if you’re paying off your balances every month, studies show that you’re likely spending more than if you were using cash.
Final Thoughts
If you manage your credit wisely, you can improve your insurance score and pay lower premiums. This is true for both personal insurance (like home, auto, and umbrella) and commercial insurance if your business is in a state that uses credit scoring for determining rates. So, take control of your finances, manage your debt, and ensure you’re paying the lowest possible rates on your insurance while getting the best coverage.
Here’s to Your Financial and Insurance Success!
Hopefully, this has been a helpful tip for managing your credit cards and your insurance. The better you manage your finances, the more you’ll save on insurance, and the more financially secure you’ll be.
Have a great day!
Article LINKS:
JD Power and Credit card Debit in US and Updated Credit Card Debt