It’s the quandary that people in debt face every day: How do I spend as little as possible on debt and still manage my risk? Lenders might offer a person taking out a credit card extended credit card payment protection for a small monthly fee, but people may feel they don’t have the spare cash to spend on securing a balance. In their mind’s, paid credit card protection is for those people who are rich enough not to need it, because they can afford the additional cost of carrying it. However, this type of thinking is exactly the opposite of what should be going through someone’s mind when they’re offered payment protection. Instead, they should be weighing the risk of defaulting on debt more than the cost of the small monthly payment used to make sure they can continue making payments if they get ill or are made redundant in their jobs.
How the rich might weigh the risk of not carrying payment protection
First, rich people would figure out how much of a balance they typically carry and whether they have enough savings to cover the balance should they suddenly lose their business or get seriously ill. If they are already carry disability or life insurance, this might help in the case where they were suddenly diagnosed with an illness or suffered a major accident. It would not help them if they lost their business and the associated income. For that they would need to rely on their savings or investment accounts to help repay outstanding debts.
Or, rich people with huge outstanding balances may decide that claiming bankruptcy would be the better option if their hope of repaying their debt in a few years is miniscule when compared to the size of the debt. For those that don’t have the option of a large bank account or business investments to cover an outstanding credit balance, the paid credit card payment protection can offer some peace of mind when they lose a job or get sick or injured. This is much truer for someone who is depending on an employer and a healthy economy to keep from being made redundant. Business owners might decide that claiming bankruptcy makes more sense.
When bankruptcy is not an option
If your livelihood depends on being able to work in your profession, it may be a very bad idea to file bankruptcy to get rid of credit card debt – even if your business fails. Bankruptcy in the UK can bar certain professions from practicing if that individual is declared bankrupt by the courts. In such cases, a payment protection plan can offer some peace of mind that debt payments will be made and creditors will not force that individual into bankruptcy through non-payment. This will give them time to work out an individual voluntary arrangement to resolve all the debt without a bankruptcy declaration. This can not only save their credit for a time, but also save their potential earning power for the future when thing might be a whole lot better.
Other risks that demand that you take out credit card payment protection
Other types of risks that can help you decide whether you should pay the monthly fee for extra credit card protection is whether your loss will affect more than yourself. It may be one thing to lose a credit rating, but quite another if the loss of a job or an unexpected illness also puts your family at risk. If you can cover a mortgage with unemployment benefits for a period of time, but not the additional credit card payments, then you might want to consider taking out extra credit card payment protection. If you happen to be made redundant through no fault of your own, the benefits can mean that you will be able to keep your family fed and housed, even while maintaining a good credit history. This will undoubtedly help you if it takes a bit of time to find a new job or if a job offer is dependent on a good credit history. It can also save you from having to dip into retirement or investment accounts to make up the difference. When the risk of non-payment affects more than just you because you are the primary bread-winner, it makes sense to add extra protection to your accounts to keep you solvent even when things don’t go exactly as you had planned.