Should You Pay Attention to Pre-Approved Credit Card Offers in the Mail?

It feels good when financial doors open, especially if you've worked hard to rebuild credit from a prior low spot.

But there's a reason credit card companies try so hard to get you to bite. They make money.

When you receive pre-approved credit card offers in the mail, consider them to be nothing more than information you can use to make your own educated financial decisions.

Why do you get pre-approved credit card offers?

If you have decent credit or better, you probably get pre-approved credit card offers in the mailbox darn near every day.

You get pre-approved (or pre-screened) credit card offers in the mail because the credit card issuer took a look at your credit and thinks you might qualify for the offer. Even if the letter says "You're pre-approved," it isn't a guarantee. You'll still have to apply if you want the card. Getting the offer means you fit the definition of the issuer's target customer.

You're a target. Keep that in mind.

Why do they send so many pre-approved credit card offers?

The name of the game is money. About half of credit card owners carry a balance. Just about all of those people are paying interest on their balance. The average interest rate is around 22% to 25%, but can be as high as 36%.

If you owe $5,000 on a credit card that has a 24% APR, you'll pay almost $100 in interest this month. If your minimum payment is calculated as the interest plus 1%, you'll pay about $150, meaning you'll only make a $50 dent in the balance that you owe.

The average credit card debt in America is a little higher than $5,000, according to research from Motley Fool Money. So you can multiply this scenario by tens of millions of people to get a sense of how much money is at stake for the credit card issuers.

What should you do with pre-approved credit card offers?

Pre-approved credit card offers are not inherently bad. They can give you a sense for what you might qualify for. You can use your pre-screened offers to strategically manage the credit cards you keep in your wallet.

The first option you have is to go ahead and apply for the card. Two big reasons you might choose to go online and apply are bonuses and balance transfers:

Credit card welcome bonuses

Many travel credit cards offer a generous payout of free points or miles to new customers who get the card and meet requirements (usually by making a certain amount of purchases with the card in the first few months). If you're taking a vacation next summer, you could get an airline credit card and a hotel credit card now, meet the spending requirements, and redeem the points for your trip.

What to watch out for:

The catch with travel credit cards is that the ones that have really good bonuses usually also have an annual fee. The annual fee can range from $49 to $500. The annual fee can be worth paying if you are certain that you will get benefits that are worth more.

Balance transfer offers

If you have higher-interest credit card debt that you're trying to knock down, and you qualify for a balance transfer card, you could use it to get ahead. These are offers for 0% or very low interest on transferred balances for a period of time (usually between six and 21 months). There's almost always a fee for the balance transfer, ranging from 2% to 5%. So if you transfer $5,000 and the fee is 3%, your starting balance on the new card will be $5,150. Now, if you're paying 0% interest, every dollar of your payments will lower the balance you owe.

What to watch out for:

A common pitfall with balance transfers is to use a new card to pay off an old card, and then…charge that old card back up, resulting in more debt.

Reduce this risk by closing the old card when you pay it off. It's possible that closing a credit card could cause your credit score to drop temporarily. But addressing your financial situation is more important than having multiple open cards if there's any risk that you'll increase your debt.

When it's not a good idea to consider pre-approved credit card offers

The second choice you have when you receive those blank checks in the mail is to deliver them straight to the shredder. There are many reasons to take a pass:

• You don't carry a balance, so balance transfer offers don't matter.
• You're loyal to your favorite credit card and you already use it for all your purchases so you can maximize your rewards.
• You feel as if it's risky to get another credit card and you want to avoid letting your debt get out of control.
• You're already paying down your debt at 0% or very low interest.
• You aren't interested in changing things up in your wallet right now.
• The bonus is nice, but the card's features aren't attractive otherwise.

What should you do if you don't want pre-screened offers to show up in your mailbox?

There are privacy and identity theft concerns to consider with pre-approved credit card offers, and it can be inconvenient to shred a lot of mail every week.

Just visit optoutprescreen.com and enter your info. When you opt out online, it lasts for five years. You can opt out permanently in writing. The website will walk you through the steps. And you can say goodbye to pre-approved credit card offers using this method.