Credit-card miles: Flight to nowhere

Dear Dave,

I'm a senior in college, and my roommate just got a credit card that features airline miles. He want me to get one, too, so we can take a trip together at the end of the year. What do you think about this idea?

Tim

Dear Tim,

This is a bad idea on so many different levels. First, you're close to graduation and beginning your real life. You don't want to start out with a bunch of hanging over your head.

Second, have you seen the restrictions on airline miles lately? Jupiter has to align with Mars while you're standing on one leg to cash in on those things. It's ridiculous! Plus, statistics from Consumer Reports show that 78 percent of all airline miles are never redeemed. What does this mean? It means in most cases people end up with no cool trip and a bunch of debt.

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I'm not against going nice places and having fun, and you probably deserve to celebrate a little after finishing college. But going into debt for it is a really bad idea.

Just for a trip, Tim. Today, many debit cards have airline miles associated with them. So there's no reason to take a chance with credit cards.

Dave

Long-term disability insurance?

Dear Dave,

My husband is 31 years old and has been offered long-term disability insurance through his employer. It only costs $25 a month, but we're trying hard to live on a budget and get out of debt. Is this coverage worth it?

Rebecca

Dear Rebecca,

Yes!

is a fantastic buy. It's inexpensive, and in return it will pay you about 60 to 70 percent of his salary if something bad happens and he becomes disabled. That's not a bad deal for just $300 a year.

Statistics show that a man in his early 30s is 12 times more likely to become disabled than to die before the age of 65. Everyone needs to have long-term – not short-term – disability insurance.

Hopefully, you'll never find yourselves in a situation where you have to use this type of policy. But in the event that something awful does happen, it can help save you from financial ruin!

Dave

Perpetual debt

Dear Dave,

My father-in-law is telling us we should apply for an interest-only loan when we buy a house and then pay extra on the principle. What do you think about this idea?

Nick

Dear Nick,

Interest-only mortgages are horrible. Stay away from them!

Lots of folks get into these traps by promising themselves they'll pay extra on the principle. But according to FDIC statistics, 97 percent don't pre-pay on their loans.

Some lenders will also try to use a flashy or "sophisticated" analysis to convince you this is a great way to get into a great house. But the funny thing about most of these sales pitches is that there's no mention of the fact that you've exponentially increased risk. And risk can be mathematically entered into the equation, making your supposed gains disappear.

The best thing you can do – short of saving up and paying cash for a home – is make a huge down payment on a . Then, pay it off as quickly as possible.

When you have an interest-only loan, you end up paying only on the interest. And that's a great way to find yourself in debt for the rest of your life!

Dave

CreditCards.com: Weekly Credit Card Rate Report

AUSTIN, Texas--(BUSINESS WIRE)--Average rates for instant approval credit cards edged higher this week,
potentially in response to increased default risk associated with
instant credit decisions. Rates on other popular credit card categories
tracked by CreditCards.com remained unchanged from the previous week and
are listed below:




 


 




Credit Card Rate Averages


 




 




Low Interest


11.59%




Balance Transfer


11.41%




Instant Approval


14.18%




Reward


13.72%




Cash Back


13.13%




Airline


15.07%




Business


13.95%




Student


17.88%




Bad Credit


12.81%




 




 


 

Source:







Updated: 05-03-07


 

Several major credit card companies offer instant online decisions for
their cards as a method for differentiating their products. Issuers are
able to access certain credit bureau facts in near real-time in order to
make rapid credit decisions, usually within 60 seconds. When
insufficient data is available to make an instant online decision,
issuers reserve the right to take a greater amount of time in which to
grant approval or denial of an application involving offline review.

The CreditCards.com national weekly credit card rate survey is conducted
each week using data from the leading credit card issuers in the United
States.

Introductory offer periods and actual regular interest rates can vary
depending on individual applicants’ credit
quality and issuer risk-based pricing policies.

About CreditCards.com

CreditCards.com ()
is an Internet publisher and marketing organization that operates the
leading and fastest growing online destination for consumers to search,
compare, and apply for credit cards. The company matches millions of
consumers each year with the credit card offers that best meet their
financial needs. CreditCards.com is based in Austin, Texas and was
founded in 2003.

NOTE TO EDITORS: The information contained in this release is available
for print or broadcast with attribution to CreditCards.com.