Balance protection, or overdraft protection, is offered by banks to prevent bounced checks or withdrawals leading to insufficient funds. Credit card companies offer insurance for a monthly fee to cover minimum payments if the cardholder cannot pay. Both types should only be used in emergencies and not to encourage irresponsible behavior.
Balance protection, also known as overdraft protection, is a service that many banks offer their customers to prevent bounced checks or withdrawals from leading to insufficient funds in an account. A separate type of balance protection is a type of insurance offered by many credit card companies, for which the customer will pay a monthly fee. So, if the cardholder loses his job, or for any reason cannot make the minimum monthly payment on the credit card, the protection insurance will come into effect and the minimum payments will continue to be made for a specified period of time . This prevents an account from arriving late or going to collections.
Both types of balance protection can be helpful. A bank that offers checking account balance protection generally covers written checks up to a certain amount, without returning the check to the recipient. The person who wrote the check may still be responsible for paying the bank overdraft fees, as well as the original check amount, but at least the check will be covered. People who abuse this privilege may find that their bank will no longer offer this type of balance protection.
Balance protection insurance on a credit card may or may not be beneficial to the credit card holder. If you pay off your balance on your credit card every month, for example, this type of insurance may not be necessary, as it will simply add additional fees to your balance. On the other hand, people with large credit card balances or tenuous work situations may find this type of insurance very valuable. You should carefully read any agreements with your credit card company; often, the cost required for this type of protection can vary from month to month as the credit card balance changes.
Please note that both types of balance protection should not be used on a regular basis or to encourage irresponsible behavior with checking accounts or credit cards. They are only meant to be used for emergency backup, to prevent financial mistakes from negatively impacting your credit. It is important to carefully consider whether this type of additional protection is necessary or not. Some people build their balance protection in a checking account by simply “hiding” money in the account; for example, one could keep an extra $500 US dollars in a checking account without writing it in the checkbook.
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