By Anne Levy-Ward
You are carrying a balance on your credit cards. What will happen if you can no longer make your payments? How to prevent this situation from happening?
Credit balance insurance is sold as an effective way to secure your payments if you fall ill or lose your job. However, this is not the only way.
Even though subscribing to this kind of insurance may seem like a good idea when acquiring a credit card, its coverage is often expensive and full of exclusions. In addition, the insurance may even only cover the minimum payments.
What happens if I only make the minimum payments on my credit card?
By paying only the minimum each month, you accumulate interest and could therefore take several years to pay off the entire balance of your card. So, in the end, your purchases will cost you more.
If you don’t make the minimum payments, your card issuer could call a collection agency. This could hurt your credit rating and make it harder for you to get a loan, mortgage, otherwise, or even land specific jobs.
However, no one is immune to illness or job loss, not even the most careful and responsible people. So what are the means at your disposal to protect yourself and maintain a good credit score?
The best and easiest way to avoid dragging a balance through tough times is to make it a habit to pay your card balance in full each month. In other words, you should respect your ability to pay rather than using your credit card as a long-term loan with a high-interest rate. This way, if you need to use your credit card to make a significant or unexpected purchase (e.g., plane tickets or an effective repair on the car) or if you are suddenly unable to pay the entire balance, your card will not already be complete, and you can pay it within a reasonable time.
It is important not to live beyond your means and to regularly put some money in an emergency fund to have peace of mind. Then, you can use it when the time comes rather than throwing yourself on your credit card!
