Credit Protection Plan: Not the Best Defense

A credit protection plan is a product that is offered by most credit card companies today. Even though this type of coverage might sound attractive, there are several good reasons that you will want to stay away from it. Here are a few things to consider about credit protection plans and why you should most likely stay away from them.

Credit Protection Plans

If you have ever spoken to your credit card company on the phone, there is a good chance that you have been offered a credit protection plan. Most of the time, the company will offer this to you anytime that they get you on the phone. They will tell you that with this type of protection plan, you are going to be protected against unforeseen circumstances in your life. For example, if you lose your job or become disabled, the company is going to suspend your minimum payment for a certain number of months. The idea is that if you are unable to make your payment for some particular reason, you will not have to make any credit card payments.

Needing the Service

The chances of needing this service are fairly slim. Even if you lose your job or have some other type of unforeseen circumstance, it is not going to cost you that much to make the minimum payment on your credit card. Most of the time, the minimum payment is very affordable and is a very small percentage of the money that you actually owe. You would most likely be better off making the minimum payment with money from your emergency savings fund instead of paying your credit card company a fee to have them postpone the payment for you. If you do lose your job, you are most likely not going to be unemployed forever. Most people can find another job within a few months if they are really trying. Therefore, the need for this type of protection is very minimal. 


Something else that you need to consider is the cost that is incurred with this type of service. In most cases, it can add up very quickly. Most of the time, the credit card company is going to quote the cost to you to make it sound very small. They will say that it costs only a few cents per day or something along those lines. A typical cost for this type of service is about $.8 for every $100 that you have on your balance. While this may not seem like much, it can become significant if you carry a large balance.

For example, let's say that you have a $3000 balance on your card. This is going to amount to a charge of $24 for that month. If you kept a balance like this for an entire year, you are going to end up paying $288 for this credit protection. For something that you really don't need, this is a lot of money. 

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