Credit Protector Explained.
Please join my Credit Card Protest at DAILY-PROTEST.com
I predicted todays economic woes over two years ago, and I predicted it would be the credit card industry that would lead the way.
Credit Protector is a credit card program that postpones the monthly minimum principle payment (not including the finance charge which is suspended) should the head of the household / policy owner become unable to work, loses their full time job, has a baby, or dies. The monthly fee for Credit Protector is approximately 0.79 to 0.99 percent of the total principle that is due, and there in lies the problem.
The short explanation is this, If you do not pay off your credit card in full each and every month, Credit Protector actually raises your monthly minimum payment by .79 to .89 percent whether you use it or not. However, the monthly credit protector bill causes your remaining balance to remain higher, which in turn means you pay more and more in interest charges each and every month you stay signed up for credit protector.
This is the longer explanation. Lets examine how the Credit Protector program may contain one of the worst ratios of intake of money from policy holders versus payout of money ever perpetrated by an insurance group against its customers.
Lets say a customer owes 10,000 dollars on a credit card. The monthly minimum payment is 1% of the principle plus 9.9 percent finance charges, or approximately 100 dollars plus 82.50 a month in interest. Above and beyond this 182.50 monthly minimum the customer is required to pay, Credit Protector charges another 0.89 percent or approximately 74 dollars for the first months coverage.
If a customer can afford to pay an extra 74 dollars each month for Credit Protector, wouldn't the best use for that money be to actually help pay down the actual credit card debt? What about depositing that 74 dollars in an interest bearing account as a rainy day emergency fund? The monthly Credit Protector bill causes the customer's existing credit card balance to remain at a higher revolving amount each and every month, which in turn increases the overall monthly finance charges, which in turn decreases what gets paid toward paying down the principle.
After two months of Credit Protector enrollment, 148 additional dollars that could have gone towards paying down the credit card principle has instead gone towards Credit Protector Coverage. The remaining principal in the customers account remains increasingly higher each and every month that a customer is signed up for the Credit Protector program. After two months, the customer accrues an additional 3 months worth of finance charges on the monthly fee of 74 dollars.
After three months worth of Credit Protector coverage, one would have paid approximately 222 dollars for Credit Protector plus the equivalent of 6 months worth of interest charges on the 74 dollar monthly fee. Whatever you pay into Credit Protector is money that CANNOT be used to pay down your credit card debt.
In my opinion Credit Protector has basically attached itself to the customer's credit card account as a "tax", preventing the customer from the real goal of actually paying down their credit card debt.
How Credit Protector Drains Your Wealth.
By the end of the first year of enrollment in Credit Protector, a 10,000 dollar balance and 9.9% interest rate will have cost the customer approximately 816 dollars just for basic "coverage".
But it's even worse than that. An extra 78 monthly interest payments (12 + 11 + 10 + 9 + 8 +7+ 6 + 5 + 4 + 3 + 2 + 1) are due on the average Credit Protector monthly charge of 74 dollars, which equals an additional 577 dollars of finance charges! The cost after one year for using "Credit Protector" on a 10,000 credit card debt is 816 dollars plus 577 dollars, or 1,393 dollars, and that is if your credit card has a relatively low 9.9 percent rate! So what does 1,393 dollars actually get you, besides being more in debt?
Lets say you actually used the Credit Protector coverage because you lost your job, and you lost your job in the precise manner that allows the Credit Protector coverage to actually kick in. All Credit Protector is going to do is pay your monthly minimum due (minus the finance charge!) while you are out of work, BUT, you still have to make your monthly payments for Credit Protector AND BE ON TIME with those payments. In essence you could be paying 74 dollars a month just to avoid paying 100 dollars a month in principle charges! And Credit Protector ONLY COVERS ONE CREDIT CARD!
What if you suffer some kind of trauma that causes you to be late making your payment? You lose your coverage!
In essence your credit protector payment barely reduces the principle that you owe because you still have to make a monthly payment to the program, even when you have lost your job. Um, unless you die AND are head of the household. lol, or something like that. How nice of the credit card companies to void monthly interest charges because you are hurt. And to get that niceness all you have to do is pay month after month whether you need the credit protector service or not.
There are a couple of other credit protector benefits such as if you die AND are the breadwinner of the family, I think our credit card debt is "forgiven" (up to a certain amount). If there is a pregnancy the time in the hospital is considered a reason to skip a credit card payment, ahem, as long as you remembered to pay that month's Credit Protector bill. (gasp!)
I believe that Credit Protector is a wink, wink, nudge nudge program, meaning the elite of our society know it is an unethical program but they accept it because it is an easy way to take money from those who are uninformed about how inequitable the Credit Protector program really is.