August 28, 2015
What Hurricane Katrina Can Teach Us About Insurance and Credit Card Debt
When the first television images of Hurricane Katrina started coming in 10 years ago, it was clear that something unprecedented was happening.Â Personally, I will never forget watching a man trying to explain to a reporter that his home and his wife had floated away minutes before. He didn’t understand what was happening. At that point, none of us yet realized that we were witnessing the costliest natural disaster in United States history.
As stories emerged about the victims of Hurricane Katrina, we learned that many in the hardest hit area, New Orleans’ 9th ward, were economically challenged, even before the storm, which caused approximately $108 billion in property damage.Â A high rate of unemployment, and low incomes in the area made it challenging for many to create financial well being and sound credit histories.Â Consequently, many residents were likely paying high premiums for homeowners insurance building up to the storm.
A study by Bankrate.com found that homeowners with poor credit typically pay 91% more for homeowners insurance than people with excellent credit.Â In addition, the Consumer Federation of America finds that just 57% of people surveyed were aware that their credit score could affect what they pay for homeowners insurance.
“It’s an unfortunate reality, but your credit score does impact your premium for car, homeowners, and rental insurance,â€ says Shirley Ann Robertson, a financial professional based in Schaumburg, IL with Prudential Advisors.
“It’s all about financial responsibility. Financial responsibility is determined by your credit score and being financially responsible provides you with the best rate,â€ she adds.
According to credit bureau Experian, most credit scores fall between 600 and 750. A score above 700 suggests good credit management. You can get a free copy of your credit report each year from annualcreditreport.com.
If you are on the lower end of the range, you need to take control of your unsecured debt, which is usually the result of credit card use.
“As a part of the overall spending plan, credit card debt payments should not represent more than 10-15% of the monthly budget,â€ says Bruce McClary of the National Foundation for Credit Counseling.Â
And one of the most important things you can do to boost your credit score is pay your bills on time. This ranks in importance with keeping your unsecured debt levels as low as possible.
As we remember the 10th anniversary of Hurricane Katrina, let’s honor the victims by making sure that our own houses and our credit are in order.