Discover is offering a special cash-back bonus of $15 if you agree to add payment to your credit card account. Is this a good deal? The short and long answer is no.
Payment protection, also called credit card insurance, temporarily suspends any minimum payments you are required to make on your credit card account if you suffer a "qualifying event" such as a job loss or an illness that makes you unable to make at least the minimum monthly payment. But it doesn't - and this is important - cancel your debt, as many people believe.
You are still responsible for resuming payments and paying back your entire balance once the payment protection period expires - on a recent Discover offer, it was up to two years. The only way your debt is wiped out is if you die during the coverage period, up to $25,000 of debt.
Credit Card Payment Protection is Expensive
Payment protection is expensive, and a $15 cash-back bonus won't come close to covering the cost. For example, Discover's plan costs 89 cents per $100 per month. That doesn't sound like much, but the monthly fee on a balance of $1,000 would be about $9. So that $15 cash-back bonus wouldn't cover two months of payments, even on a balance that small. Discover requires you to agree to keep the coverage for at least two months to qualify for the bonus rebate.
By way of comparison, the minimum payment on a balance of $1,000 is about $20.
Canceling Payment Protection
Another problem with payment protection is that once you enroll, it's usually hard to stop paying. Once started, many people forget that the charge is on their monthly bill. It's up to you to cancel the policy if you don't want it anymore. Using our $1,000 balance example, payment protection will easily run you over $100 a year - for coverage you don't really need.
Should You Sign Up for Payment Protection?
Payment protection is almost never a good idea. If you can afford to pay for payment protection, you should also be able to at least make the minimum monthly payment to keep your account in good standing. You'll also be paying down your balance, if only a little bit.Remember: payment protection doesn't pay off your balance, it only suspends your monthly payments for a time. You're still responsible for paying off the balance.