Tuesday, June 2

Skip payments: Stupid move... or is it?

Me vs. Debt recently related a little trick Chase played on her recently: eliminating her monthly payment. Apparently, she can skip a payment -- so long as she pays past due and over-limit balances immediately. Oh, and finance charges will continue to accrue. But other than that, she's home free!


So, in other words, rather than pay your minimum balance, you can pay the $30-40 late fee, plus keep accruing interest, plus pay if you go over the limit.

Checking over some of our worst (read: biggest) statements, it's easy to see that the late fee plus finance charge isn't much less than the minimum payment due.

You have to admit: A pretty savvy marketing campaign on the card companies' part. It makes it sound like they're taking a load off our shoulders. In fact, they're letting us sink deeper into debt while still getting about the same amount of money.

First, Americans were convinced that they didn't have to put any money down for a house. Now, they're being told the same thing about card balances. And that house thing turned out so well, I can't see why people wouldn't follow suit!

Anyway, this post reminded me that I had saved an email from the oh-so-friendly folks at Citi. Why did it catch my eye? The title was just too hilarious to delete: "Find Out How to Take a Break from Your Monthly Payment."

See, the people over at Citi understand that things happen. Ya know: marriage, job loss, disability, "and more!" They're there for you. And they have some sage advice to impart: Cancel your Citi card payment when you need the money most.d (This is quite literally what I first read upon opening the email.)

Thanks to Citi Protection, you can take time off from those pesky bills that come around:

  • Suspend your payments for up to 3 months for family leave (birth or adoption) or a chronic illness of a family member. (Because chronic illnesses are always handled in a quick, up-to-three-month fashion.)
  • Or suspend your payments for up to 24 months for job-loss or short-term disability.

All you have to do is pay $0.85 per $100 on the card's balance, each month you're enrolled but not actually eligible to suspend payments. That works out to $42.50 per month for an account with a $5,000 balance. That's $510 a year.

Of course, if you pay your bill in full each month, you might be tempted into the program. Citi can't charge you if you don't keep a balance on the card, right? Wrong.

Turns out that the $0.85 is charged to the "New Balance" of each statement. That includes any purchases you make during the month., regardless if you pay the full amount off. So, if you had a really busy month and charged $1,000 -- even if you paid the whole thing -- your protection program fee would be $8.50. Pretty sneaky, eh?

Okay, this sounds just as awful of a deal as Chase, right? I mean, you're not really saving any money. Or are you?

Here's the thing, you can enroll in this program the same day that you are injured or lose your job. Just so long as you don't enroll after the event, you would be eligible. This means no payments at all, no interest accruing and no finance charges of any sort.

I think there are an awful lot of folks out there who are involuntarily unemployed who could use a program like this. And if you enroll the same day you're fired, you never actually pay for the protection. (Yes, even the protection fee is waived during this period.)

The only thing that I can think is that Citi hopes to prey on people's fear and get them to enroll as a preventative measure. If we are worried about impending unemployment, we might consider the program a good safety net -- especially with a free one-month trial. And if your company is about to announce another round of layoffs soon, I could kind of understand the appeal.

Essentially, I suppose, the company is betting that people will be too rattled by being fired; they won't think to call and enroll in card protection. Otherwise, Citi would lose millions, if not more!

But given this loophole, is a "protection program" ever really worthwhile? Or is it the newest form of "extended warranty" or "undercoating" on that new car you're buying? Could you ever trust yourself to enroll in a timely manner? Do you know someone who has actually successfully used this kind of program?



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