Many people are concerned that they won’t be able to meet their credit card payments. Some people have actually turned to credit card insurance. Credit card insurance plans will help you meet the minimum monthly payments if you are suddenly unable to make your payments.
Credit card insurance plans can be helpful if you lose your job or get sick. However, there are a number of possible problems. You should take all these factors into consideration before you sign up for a credit card payment protection plan.
First and foremost, you need to consider the cost of a credit card insurance program. You will have to pay a portion of your balance each month. The fee for credit card insurance is usually a little less than 1% of your balance each month. Over time, this can add up, especially if you use your cards regularly.
Another problem with credit card insurance programs is that they give you a false sense of security. When you take out credit card insurance, you may be a little more liberal with your spending habits. Over time, you are still going to rack up your balance and have to pay more for it, whether or not you end up needing to activate the insurance.
You also need to know what your insurance will cover. Typically, you can use the insurance if you lose your job, become disabled or seriously ill or become deceased. You will not be able to use your insurance just because you racked up too much debt.
Obviously, most people face problems with their credit cards because they can’t spend carefully. Credit card insurance is unlikely to help them deal with their financial problems.
You may benefit from participating in a credit card protection plan if you have concerns at work. These days, businesses may lay employees off at a moment’s notice. However, that doesn’t mean that insurance is your best bet.
Instead of buying credit card insurance, you may want to consider putting money into a high yielding annuity or bond each month. Over time, your money will grow. That way, if you are unable to meet your credit card payments for a few months, you will have something to draw from. The advantage of investing your savings in high yielding investments is that you stay focused on growing your wealth. It makes more sense to keep your money growing than to lose money in anticipation of the worst case scenario.
Consider the costs of a credit card insurance plan before your enroll in one. The chance that you will lose your job or become critically ill is probably a lot lower than you think. There is no sense paying hundreds of dollars for an insurance plan that you will probably never have to use. It’s good to be cautious, but you don’t want to lose money being paranoid.
Kalen Smith is a personal finance writer who blogs about family finance issues including bank and credit card charges and mis-sold PPI claims as well as other personal finance topics such as consumer debt and saving tips.