The credit crisis has everyone worried about their financial stability. In this tough economic times, credit cards have become a vital life line for every American consumer. Thus, their worries about not being able to make the monthly payments and losing available credit is quite valid. It is also quite understandable why many American consumers are very interested in protecting their credit. However, one thing they should never do is get credit card protection. Here is why.
American consumers have probably seen these offers for credit card payment protection plans smartly inserted along with their monthly bill statements. Most plans cost around fifty cents to the dollar for every balance of one hundred dollars to buy. According to the plane, when you are unable to pay off your bill, your payment protection plan will be activated. When it does, the plan will pay your bill's minimum amount due or a fixed amount, depending on the plan. The plan will also help you avoid ruining your credit score because, when the plan becomes active, the credit company will not report the situation to the credit bureaus. Credit card companies are, ostensibly offering these plans to help you recover whenever you miss out on your monthly payments.
Consumer advocates are not impressed with credit protection plans, however. According to them, these plans are too costly to be of any benefit to consumers. Plus, they provide a false sense of security to credit card holders.
According to CEO of LowCards.com, a website offering credit card information, Bill Hardekopf, consumers who buy into these credit protection plans are liable to find themselves in deep trouble. While the credit protection plan does pay your bill when you can't, it will not protect you from interest rate charges. The interest rate fees plus the upfront cost of the credit protection plan would only make your debts larger. Thus, in the event that you actually use your credit protection plan, you will end up in deeper financial trouble instead of the other way around.
Hardekopf elaborated that, if you carry a balance of ten thousand dollars, you would be paying a hundred dollars every month for the credit protection plan. This is already a considerable cost and, what's more, this cost is added to your balance and you are earning interest because of it. “Just the sheer cost of it is probably the biggest knock against it.” Hardekopf said.
Another problem is that, while the plan will pay your bills if you go overdue, it probably won't pay all of it. That means that you are likely to accrue interests even with the credit protection plan in place.