Are extra services worth the cost?
Most credit card customers are subjected to a barrage of aggressively marketed offers for fee-based add-ons — services such as payment protection, credit monitoring, identity theft protection and lost-wallet assistance.
But these so-called enhancements to a credit card are often unnecessary or simply a bad deal, except in certain rare circumstances. That’s because they tend to be pricey, constrained by small-print restrictions and duplicative of do-it-yourself tasks. In some cases, these services don’t even work the way consumers believe (or hope) they do.
Taken together, add-ons can add $50 or more to a consumer’s monthly credit card bill, adding up to a substantial annual expense.
Spending that much money can approach the point of craziness, suggests John Ulzheimer, president of consumer education at SmartCredit.com.
“In my mind,” Ulzheimer says, “that’s absolutely absurd.”
Credit card payment protection covers a consumer’s minimum payment if he or she becomes unemployed or suffers certain other calamities.
The service can be quite costly because the monthly premium is based on the outstanding balance, which is a system that “makes excessive credit card debt even more excessive,” Ulzheimer explains.
“The smart strategy,” he says, “is to throw that money, plus more of your disposable income every single month, at the principal balance and pay it down, so you don’t need payment protection.”
Payment protection sounds like it “would be handy to have,” says Thomas J. Fox, community outreach director at Cambridge Credit Counseling Corp., a nonprofit organization in Agawam, Mass.
But there’s one major limitation: The benefit might not kick in for six months or longer. By that time, Fox says, the consumer may well have found a new job, making the service moot.
One upside: Neither payment protection nor any other add-on affects a consumer’s credit score, according to Anthony Sprauve, spokesman for myFICO.com, a consumer credit information website operated by FICO.
Credit monitoring passively tracks changes to a consumer’s credit reports and sends out alerts if changes appear to be suspicious.
This service can be useful, Ulzheimer says, but he adds that consumers should shop around and not buy whatever their credit card company offers.
“The consumer doesn’t have a mall full of credit monitoring services to choose from and find one they think best fits their needs,” he says. “They have the one that’s being put in their face.”
Credit monitoring typically costs between $12 and $25 a month. Ulzheimer says that expense is most appropriate for people who have been victims of financial fraud or whose information isn’t well-secured.
“If you share a large bank of mailboxes with other people, you should have credit monitoring,” he suggests. “You never know what’s being misdirected and lost.”
One drawback is that alerts are sent only after a suspicious change has occurred, Fox explains.
“It’s like getting into a car accident and someone comes up and says, ‘Hey, you just got in a car accident,'” he says. “If it could (notify you) that someone was going to steal your credit tomorrow, I’d say buy it.”
Identity theft protection
Identity theft protection aims to help consumers safeguard their financial information through such steps as opting out of credit card offers and providing extra credit report guidance or access.
Again, this service might be valuable for people who have been victims of fraud and whose financial information is still vulnerable to abuse. For everyone else, though, it’s probably not worth the cost, which is comparable to that for credit monitoring, Ulzheimer says.
No one is exempt from the risk because everyone has a name, birth date and identity. Yet Ulzheimer says consumers can opt out of receiving credit card offers, periodically review their credit reports and take other actions to protect themselves without purchasing an add-on service from a credit card company.
Price points for these services have settled between $10 and $20 per month per service, and there’s a reason for that, according to Ulzheimer. Providers know that’s low enough to be acceptable to consumers and high enough to create the perception in their minds that these services have value.
Lost-wallet assistance enables a consumer to register the contents of his or her wallet with an online system, making the data available at need. Typically, the service also will notify banks, credit card companies and motor vehicle departments if the consumer reports the wallet has been lost or stolen.
One obvious limitation is that the service is only as good as the data. Missing or outdated info can negate the benefits.
Another concern is that a computer hacker or rogue employee could compromise the database. Given the many corporate data breaches in recent years, it’s safe to say no system is invulnerable.
Ulzheimer suggests a better approach is to create a personal record-keeping system that’s offline and free, too.
The bottom line is that consumers need to think hard before they sign up for any of these credit card add-ons.
“If you completely understand the charges, balance that against your values and say, ‘I am willing to pay for that,’ that’s fine,” Fox says. “But if you’re not paying attention to the terms and conditions, you don’t have the opportunity to engage the offer and completely understand the benefits and drawbacks.”
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