Payment Protection Plan
- Examine how a payment protection plan can help you if you become unemployed or disabled.
- Understand that the costs are high for a payment protection plan.
- Make sure to use the benefits you pay for, if you become eligible to claim them.
I have the Chase Payment Protector Plan on my credit card. I became unemployed recently. Should I use the plan or cancel it?
I have foolishly been paying for a payment protection plan for my Chase credit card. I am now unemployed. Should I use the payment protection service? If I do, Chase will suspend principal, interest and payment protection plan charges for 2 years. Meanwhile credit bureaus will reflect a static balance, and it will be obvious I'm not paying down my credit card. I figure if my creditors sense I'm having problems, that detriment will be worse than the benefit of suspended payments. So far, I'm able to make the minimum payments. I've decided if I don't use the payment protection plan, I will definitely discontinue it. My balance is $8500 and the monthly charge is $0.89 on the dollar of outstandings, like $75/mo. being added to my principal. By the way, Chase also has my 1st mortgage on my house, in which I have equity.
The terms vary, but most payment protection plans pay either a portion or all of the outstanding account balance or monthly payment amount for a loan, line of credit, or credit card in the event of death, disability, job loss, or some other specified covered event. Think of a payment protection plan as a form of insurance -- if you are lucky you never need it then buying the insurance was a bad gamble. However, if you need the insurance then buying the policy was a smart bet.
In general, payment protection plans are expensive for the value offered. Consequently I recommend consumers analyze and understand the complete cost of a payment protection plan before buying one. In most cases it would be smarter to spend the money on paying down the balance sooner or taking the money that would have gone into the payment protection plan and depositing it into a savings account.
Chase calls its program "The Chase Payment Protector Plan." The Chase plan makes minimum monthly payments and waives interest for six months to two years if a consumer becomes unemployed, disabled, or is called into active military service, among other conditions.
Recommendation
You mentioned you have been paying for a payment protection plan on a Chase credit card and are unemployed. You are concerned that if you start using the plan your other creditors will detect this and cause you some harm. I am guessing you fear the other creditors will increase your interest rates or decrease your available credit limit. You also wrote, "So far, I'm able to make the minimum payments," which suggests to me you fear you will be unable to make the minimum payments in the future.
At this point, you are making minimum payments and are getting charged interest on your $8,500 balance. By invoking the payment protection plan the payments will continue at the same minimum level you are paying now, but interest charges will be suspended.
Should you start using the payment protection plan? That is up to you to decide. I have no insights into your savings and overall cash burn rate, your other credit cards and their balances, your profession, and prospects for a job. If you are a wealthy individual, have a low cash burn rate, and excellent career prospects, then invoking the Chase payment protection plan is a bad idea. However, if you are not wealthy, are burning cash at a frightening rate, and face a tough job market I think your choice is very clear.
I hope this information helps you Find. Learn & Save.
Best,
Bill