After a hard day's work, you sit down to the dinner table
looking forward to a nice, relaxing meal with those you
love, and the inevitable happens: your telephone rings.
It's your credit card company and it's imperative that they
speak with you right now. Your heart stops, immediately
fearful of identity theft or unauthorized charges.
Instead of a problem, the representative from your credit
card company launches into a sales pitch for a credit
protection plan. So what are they -and do you need them?
Credit protection plans come in all shapes and sizes, but
they are basically a form of insurance packaged and
promoted as a way for you to protect your credit score and
your pocketbook if certain things take place.
While every credit protection plan is different, most are
designed for credit card accounts and small
un-collateralized consumer loans. These credit protection
plans claim that they will step in and make your minimum
monthly payment if certain calamities befall you.
For instance, if you get laid off from your job, go through
divorce, or have a disabling accident, benefits will
supposedly be triggered to help you in your time of need.
Sounds pretty good doesn't it? Here's the kicker: they
rarely work out the way your credit card company claims
they will.
Instead, here's what usually happens: you discover that the
credit protection plan you've been so diligently making
monthly payments on has more loopholes than a corporate
income tax bill.
There are a few credit card protection plans that offer
decent benefits and pay off the way they advertise, and
that brings us to another reason I think they're a terrible
idea.
As you know, being smart with your money involves carefully
analyzing potential expenditures and making sound decisions
based on available information.
These credit protection plans are pretty pricey; most will
run you between $.79 — $.89 per month for every $100
of your balance. This is where they get you because most
people think that if they pay off their credit card every
month that they end up with a zero balance.
In the real world that would be true, but to your credit
card company - it's not. If you use your credit card at
any point during the month, you have a balance, because the
credit protection plan fee is charged before any payments
are credited to your account.
So if you were to use your credit card to buy a $5,000
plasma TV with the intention of paying the balance off in
full when your statement comes, you would still be on the
hook for the credit protection plan fee. At $.89 per $100
of your balance, that would come out to $44.50. On the
surface, that doesn't seem like a whole lot of money, but
remember you're planning on paying this card off when you
get your statement.
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Darrin Roseborsky is a Refinance Specialist with OMAC
Mortgages, seminar speaker and president of
HomeRefinanceCoach.com. Darrin shows people how to MAXIMIZE
their equity PROPERLY and how to choose options that make
the MOST SENSE for their situation! An example of exactly
how this works, is at: http://www.homerefinancecoach.com
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