Sunday, February 8, 2009

Creditor Protection

I was just reading this article and it reminded me of the time when I mistakenly bit on this trap. While there is a circumstance where you may not be covered by standard life or health insurance policies but you would under this protection, namely the loss of you job, it just isn't worth it. It's far too expensive.

The problem is the pitch. It only costs 1% of your balance, they say. So you may think that it will bump your APR up a percentage point. Wrong! It bumps your APR by 12 percentage points. It is 1% of your balance monthly. Your monthly interest is calculated by multiplying your average daily balance (on most cards) by one twelfth of your APR. If your annual number is 12% then your monthly number is 1%. In that case you would double your interest by taking this offer.

It just isn't worth it. If you carry no balance then this does nothing for you and it can make your debt balloon in a situation where you start carrying a balance. If you do carry a balance then you'll instantly double your interest owed. You're better off putting the money into your emergency fund.

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