Credit card protection plans are also known as Payment Protection Insurance and Repayment Protection Insurance. They are designed to cover your credit card payments in the eventuality that you have an accident or illness that prevents you from working or that you are made unemployed. While this type of plan seems like a good thing to have they do have their drawbacks and so we’ll look at the pros and cons of credit card protection plans now.

The Pros of the Plans

As mentioned above, this type of plan pays your credit card instalments for you should you be off work or made unemployed. So as far as peace of mind is concerned they are a handy addition to have. The plan payments are added directly on to your monthly instalment figure and so it may be that you won’t even realise you’re paying for the insurance. In addition, the amount you pay is proportional to your credit card balance and so the lower the balance the less you pay but you still get the protection of the insurance.

So these are the pros of credit card protection plans…and now onto the cons.

The Cons of the Plans

Credit card protection plans may give peace of mind but they are expensive to have. In fact, the average monthly payment works out to around 80p for every £100 of your balance, which means if you have a respectable balance of £1000 you pay £8 each month to protect the payments. This then means that £8 of your payment each month is used to pay for the protection plan and it isn’t being paid off your balance. Now some of you may say that £8 is neither here nor there but work out how much you’ll be paying if your balance is £5000 or even £10,000. And what if you have more than one credit card with a payment protection plan?

It is often much cheaper to take out a general Income Protection Policy which pays a proportion of your monthly income should you be unable to work.

Another thing about credit card protection plans is that they are normally (but not always) automatically included when you receive a new credit card and you actually have to request that they are taken off your account. Thus, it may be that you’re paying for payment protection without even knowing it and if you’re paying for an Income Protection Policy as well then it’s a big waste of money.

Please don’t think that we’re saying credit card protection plans are a waste of time or a rip-off because we’re not. We’re simply pointing out the facts so that you can make your mind up as to whether you need these plans or not. It might be worth researching Income Protection policies though, especially if you’re paying multiple credit card protection plans each month.