Is Credit Card Protection Worth It

Like me I'm sure many of you I've been offered credit card protection at some time in the past. This commonly happens when receiving credit card offers through the post or in more recent cases I've experienced it while out shopping.

In our local drug store the chirpy shop attendant usually opens with the line "Excuse me sir, but would you like to take advantage of future discounts or a $15 cash back if you sign up for the cards credit card payment protection scheme"

The shop attendant went on to explain that if I was unfortunate enough to lose my job through redundancy or ill health the credit card issuer would take care of my minimum payments. In return for this I would only be charged 75 cents for every $100 overdue in my account. Even though, I was tempted I politely declined and went on my way.

This is a common scenario however, the main difference for many people being offered credit card protection is that they actually sign up for it. And its no wonder, with the way the current economy is going at the moment and the constant negative stories being pumped out by the mainstream media many people are fearful of their job security.

Although, the benefits sound good is CC protection worth it? Lets find out...........

What Exactly Is Credit Card Protection

The whole concept behind credit card protection is that in return for a monthly fee the card issuer will provide  protection when you lose your job, or if your main source of income is lost due to ill health and you no longer have the capacity to pay your credit card payments. The protection can vary from issuer to issuer but it essentially means that they stop your payments, the interest charges and other fees for an agreed period of time. This is usually up to 6 months.

In the beginning credit card card companies offered  this to new and existing customers and it was referred to as  credit card insurance. In those days it was actually insurance because it had to adhere to certain regulations as a normal insurance policy would.

However, these have plans have been revised over the years to become debt cancellation plans. These new revised plans are not just different in name as they are no longer categorized as true insurance and in that respect they are less regulated.

It is important that you are fully understand what the protection plan offers as they are not all the same. Certain issuers will pay the minimum payments during the period that you are experiencing financial hardship. With other plans the provider may only suspend the minimum fees during the agreed period. The latter means that you still have to pay the debt.

Credit Card Protection Fees

Card providers that provide protection plans will charge an average fee of  $0.60 cents for every $100 you have outstanding on your cards balance. There are a some lenders who charge more than twice this much. Now, $0.60 cents does not seen like a lot however, if you pay only the minimum payments this becomes a recurring fee. If you also have a large amount outstanding debt on your card then it can become very expensive.

For example, if you have $2000 outstanding on your balance and the protection charges are $0.75 then, your monthly fee works out at $15 dollars. If your outstanding balance is not cleared the fees are added to the balance which will accrue more interest. So, you could be paying more the following month. If you look at it from a yearly perspective you could pay well over $180 a year in fees.  

Who is Eligible

If you are currently unemployed or redundancy is staring you in the face then you will not be eligible for card protection plans. You need to be working full time and have done so for the last 90 days. There have been criticisms that when signing up for these plans the issuers to not make an effort who to determine who is eligible or not.

There have been incidents where people who are retired have been signed up only to find out later that they were not eligible in the first place. This lack of screening at the qualifying stage has led to lawsuits where people have only found out they were not eligible for these plans when they applied for a claim.

Claiming The Benefit

If you are eligible and meet all the criteria are there any guarantees of successfully claiming the protection that was promised to you in the first place. There are no official facts however, after researching many sites and forums on the subject of credit card cover protection schemes there is an underlying trend that claiming benefits is not easy or straight forward.

There have been many people who have been paying their fees for years and when they did face redundancy they could not claim the their protection due to the provider cancelling the plan. In other cases people have been made to jump through many hoops in order to get the protection they need.

As pointed out earlier credit card payment protection schemes do not offer the same level of protection as an insurance policy. If the policy provider is messing you about then, the regulators can get involved. As this does not exist with payment protection schemes they can get away with a lot more.

Conclusion

Is credit card protection worth it? It is,if you can you make sure that you pay your outstanding balances each month and that the provider of the plan fulfills their obligations due to job loss or ill health.

However, payment protection plans can be costly if you only pay the minimum payments or if you have a large amount outstanding on your card.  If your in this situation then these payments plans are  certainly not worth it.

When the time comes to claim your reward there is also the risk that the provider may not pay up due to the lack of protection offered to the consumer.

A better alternative to these schemes is that the money you would pay in fees could be put into a high interest savings bank account. Each month you put in an amount you can afford and let the balance and accrued interest grow. When an emergency comes up you will have the peace of mind knowing that you have easy access to your own emergency fund.

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