If you’re worried you might lose your job and won’t be able to pay your bills, the idea of a credit-card protection plan sounds great. But think twice and read the fine print before signing up. You could do better on your own.

In general, these plans advertise that if you have a hardship – lose your job, have a death in the family –  it will freeze your account so it stops interest accrual and the minimum payment made until you’re able to work again.

But nothing is free, and these plans are costly. In the end, the credit-card company wants to be paid. And you need to understand that no one will just wave a wand and absolve you of your debt. You will have to repay it — and with their fees under these plans.

The cost of the purchase protection varies by carrier. It ranges from $0.50-$0.99 per $100 that you carry as a balance. If your balance is $10,000, the protection plan could cost almost $100 per month or $1,200 per year, says Bill Hardekopf, CEO of www.lowcards.com.

“If you carry a balance on your credit card, the monthly cost of the plan is added to your balance and you have to pay interest on it,” Hardekopf says. “These plans are another way for issuers to increase their revenue.”

Since the plan will only cover your minimum payments, why not put the money you would pay for the plan toward your current bills, he suggests.

Here are some other tips from Hardekopf, also author of The Credit Card Guidebook:

  • If you already have life insurance, that plan may cover your debts after death.
  • Contact your issuer and try to work out a payment plan yourself.
  • If you are currently unemployed, are you eligible? Most issuers require that you be employed for 30-90 days before enrolling, and you must be a full-time employee.
  • Are you close to your credit limit, or have a history of late payments on your card? You may not be eligible.
  • Credit card protection plans don’t follow the same rules as traditional insurance. It is the consumer’s responsibility to be familiar with the requirements and exclusions of these plans.
  • Look for time limits and exclusions. Payment periods vary by the reason you need them.
  • Examine the age requirements since many have a maximum age limit.
  • Ask the issuer what situations will it pay for? What situations aren’t covered?
  • Will the plan cover your spouse or supplementary cardholders?
  • What happens if you miss a payment or if your account isn’t in good standing when you file a claim?
  • How and when can the policy be canceled?

And check out my columns on how to get the best from your plastic:

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