Balance protection, or overdraft protection, is offered by banks to prevent bounced checks or insufficient funds. Credit card companies offer insurance for a monthly fee to cover minimum payments if the cardholder loses their job or can’t make payments. Both types should only be used in emergencies and not encourage irresponsible behavior.
Balance protection, also known as overdraft protection, is a service many banks offer their customers to prevent bounced checks or withdrawals that cause 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. Then, if the credit card holder loses their job, or for some reason is unable to make the minimum monthly credit card payment, the protection insurance will kick in and the minimum payments will continue to be made for a specified period of time. . This prevents an account from being late or going to collections.
Both types of balance protection can be beneficial. A bank that offers balance protection on a checking account will generally cover checks that are written 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 overdraft fees to the bank, as well as the original amount of the check, 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 one pays off the credit card balance every month, for example, then this type of insurance may not be necessary, as it will only add additional fees to the balance. On the other hand, people with large credit card balances or tenuous employment situations may find this type of insurance very valuable. It is necessary to read any agreement with the credit card company carefully; Often the cost required for this type of protection can vary from month to month as your credit card balance changes.
Please note that both types of balance protection are not intended to be used regularly, or to encourage irresponsible behavior with checking accounts or credit cards. They are only intended to be used as backup in an emergency, to prevent financial mistakes from negatively affecting one’s credit. It is important to carefully consider whether or not this type of additional protection is necessary. Some people build their own checking account balance protection simply by “hiding” money in the account; For example, one could save an additional $500 US dollars in a checking account without writing it in the checkbook.
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