What Is Balance Protection Insurance?

Credit card companies always seem to be offering credit card balance protection insurance. The salesman on the phone paints this terrible picture of what will happen if you get sick and can't pay your credit card bill. Then he tells you the insurance only costs a few pennies a month, and you can even try it out for free for the first 30 days. Consumers need to make an informed decision before signing up for this coverage.

Definition

In theory, like all insurance, credit card protection insurance collects a small fee regularly in order to protect you from a large unexpected expense at a later date. In this case the fee is based on the amount of your outstanding balance, and it protects you against unforeseen circumstances that might prevent you from being able to make payments on your credit card balance.

Types of Credit Card Payment Protection

There are basically four types of credit card protection. The first three types will pay your minimum monthly payment for a certain length of time should you qualify based on the policy's criteria. To qualify, you must have become disabled, lost your job involuntarily or suffered a critical illness. If you are unable to work, the insurance will pay your minimum payment. The fourth type is slightly different in that it pays your entire balance (not just the minimum) if you die or are permanently dismembered.

How Much Does it Cost?

At first blush the fees seem reasonable; after all, they are only a few cents a month. Typically, they range from 87 cents to 95 cents per $100 of balance on your card as of 2011. If you have no balance, you don't pay anything. But if you have no balance, you wouldn't need the insurance.

Is It Worth the Cost?

Assuming the lowest fee of 87 cents per $100 of balance and a monthly balance of $6,000, it would cost you $52.20 a month for the coverage. So if you have the coverage for a year and then get laid off, you will have paid $626.40 for insurance. But even if you collect, it doesn't pay off the whole $6,000; it only pays your minimum until you can start making payments again. If you had put that money into a savings account, you could have used it to make your minimum payments for quite a while. Or if you had put it toward your debt your $6,000 balance would be down to $5,373.60; either way, balance protection insurance is an expensive form of insurance.

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How to Calculate Debt to Total Assets

Calculating your ration of debts to total assets can give you a picture of your personal or business financial status. Ideally, you need to have more assets than debt. Businesses that have a debt to asset ratio greater than 1 are considered to be less stable and less attractive as an investment opportunity. Having a personal debt ratio that is too high can hurt your credit and make you less likely to be able to borrow money or to open new credit card accounts. You can calculate your debt to asset ratio by following a few simple steps.

Instructions

1

Calculate the total worth of your assets. A financial asset is anything you own that is of monetary value. For instance, if you own a car that's worth $13,000, a savings account that's worth $20,000 and household items (furniture, artwork and other valuables) equal to $7000, your assets would be $40,000.

2

Calculate your total debt. For example, you might owe $5000 on a boat and $20,000 on a student loan, which would make your total debts $25,000.

3

Divide your total assets by your total debt. For this example, you would complete the following equation: 25,000/40,000 = 0.625.

4

Multiply the figure from step 3 by 100 if you want to see the answer in terms of a percentage. Therefore, 0.625 x 100 = 62.5 or 62.5 percent.

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How to Calculate a Remaining Loan Balance

In most cases, you can simply look at your current statement to determine your remaining loan balance. But if you cant find or haven't yet received your statement, you can attempt to do the calculation yourself by hand. You need your previous statement and a few details about your loan to estimate the current running balance.

Instructions

1

Determine the monthly rate on the loan, which is the annual rate divided by 12, and label it "R."

2

Identify the initial balance, which is what you originally borrowed, and label it "B."

3

Write down the monthly payment amount (labeled "M") and the number of payments at which you want to calculate the remaining balance (labeled "N"). For instance, if you have a 60-month loan and you want to know the remaining balance at month 23, N equals 23.

4

Assuming an initial loan of $10,000, a monthly rate of 1 percent (.01 expressed in decimal format) and a payment of $222.44. Again, you want to determine the remaining balance on a 60-month loan at 23 months. Insert these details into a formula to start the calculation. The formula is remaining balance equals B(1+R)^N - M[(((1+R)^N)-1)/R].

5

Fill in the details and perform the calculation using an exponent calculator. In this example the filled formula is 10,000(1+.01)^23-$222.44[(((1+.01)^23)-1)/.01]. The resulting remaining loan balance is approximately $6,851 at 23 months.

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Can I Get a Past Due Removed From a Credit Report?

Your credit report contains all the information about your activities as a credit user, including late or missed bill payments. Though you cannot always have a late bill payment removed from your credit report, you can have mistaken or old information removed by taking specific steps.

Credit Reports

You have to review each of your three credit reports before you can get anything removed from them. Go to the website authorized by the Federal Trade Commission, AnnualCreditReport.com, to request your credit report each year free of charge (see Resources). If you find any late bill payments listed on the report, collect all the information you can about the bill and any payments you made.

Errors

In general, you can only have errors removed from your credit report. If, for example, you were 30 days late in paying your credit card and that appears on your credit report, you cannot challenge the item claiming it is false. If, however, the late payment is there incorrectly, you can challenge this by notifying the credit reporting company about the error. You need to do this in writing and provide copies of any evidence you have backing up your claim.

Statement

Once notified of an error, the credit reporting company has to investigate the claim and decide if the item should be removed or not. Even if the credit reporting agency does not remove the late bill payment from your report, you do have the option of adding a personal statement to your report that explains the situation. You are allowed to include a brief statement of up to 100 words explaining why you believe the item is in error, according to the Federal Reserve Bank of San Francisco.

Good-Faith Adjustment

You can't generally remove a past bill record from your credit report unless it is one that has stayed on your report for too long. However, some financial advisers recommend that if you've had an excellent credit history and only have a single past-due payment on your report, you can ask your creditor for a goodwill adjustment. A goodwill adjustment is a written request you send to the creditor asking them to remove the late payment from your report.

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Can an Original Creditor Remove a Judgement From a Credit Report?

Monetary judgments for unpaid credit card debt are damaging to credit scores. The information is reported on credit reports for seven years, making it difficult to qualify for new credit at favorable interest rates during that time. Original creditors are unable to remove judgments from credit reports because the information is obtained by the credit bureaus from court records. That means the creditor is not involved in the posting of judgment information to credit reports.

Process

Credit bureaus obtain credit information from a variety of sources, including the courts. Major credit bureaus -- Experian, Equifax and TransUnion -- purchase court records through third-party sources. The companies review public information such as bankruptcies and judgments and forward the details to credit bureaus. Credit bureaus then add the information to credit reports.

Federal Law

The Fair Credit Reporting Act, a federal law, requires credit bureaus to list judgments for seven years, and there are no provisions for removing the information earlier unless it is wrong. Credit repair agencies sometimes promise to remove judgments in a little as 30 days, but the Federal Trade Commission reports that there is no legal and ethical way to do so.

Challenges

The Fair Credit Reporting Act gives people the right to challenge anything on their credit report, even if the information is true. That means people can right letters to credit bureaus questioning a judgment on their report. They can argue that the information is wrong and that the credit bureau must remove it. The credit bureau is allowed by law to conduct an investigation lasting up to 30 days, and must remove the judgment if it cannot confirm that the information is correct. Some credit repair firms exploit the loophole, but judgments and other court information on credit reports is usually easy for the credit bureaus to confirm.

Settlement

Settling a debt out of court prevents a judgment and is the best strategy for avoiding additional damage to credit reports. Some people receive default judgments after failing to show up for court hearings or failing to provide written responses to debt lawsuits. Default judgments are automatic when people fail to defend themselves in the lawsuit.

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How to Get a Debt Settlement on a Title Loan

If you've fallen behind on your title loan payments or the interest rate is making it impossible to pay down the balance, you may consider attempting to settle the debt for less than what is owed. While a title loan lender is under no obligation to settle, it may be possible to obtain a settlement on your title loan and ultimately resolve the debt.

Instructions

1

Get an estimate of the car's value. One of the most recognized resources for automobile values is Kelly Blue Book. You may also contact your local tax assessor for an estimate of the vehicle's worth.

2

Compare the estimated value of the vehicle to the outstanding balance due on the loan. If the value of the vehicle is less than what you owe on the loan, you may be able to leverage this as part of your negotiation strategy.

3

Stop making payments to the loan if you have not already done so. Lenders are generally unwilling to settle any type of debt if the account is current. The longer an account is delinquent, the more likely a lender may be to accept a settlement. Be aware, however, that letting the account fall delinquent may cause the lender to repossess the vehicle and/or pursue other collection actions against you.

4

Calculate how much you are willing and able to pay toward settling the debt. You must have cash on hand with which to settle so be realistic in your estimate of how much you can pay. Ideally, you should be offering anywhere from thirty-five to seventy-five percent of the amount owed, while not paying more than what the vehicle is worth.

5

Draft your settlement proposal letter. Include your name, address, account number, the original loan amount, the interest rate and the current balance due. Include any details that may support the benefits to the lender in accepting a settlement, such as the valuation of the vehicle or details regarding your financial situation. You may also negotiate how the lender will report your account to the credit bureaus and who will retain ownership of the vehicle.

6

Send your letter via certified mail to the lender. If your offer is accepted, you will need to arrange for payment, either through money order or certified check. If your offer is rejected, you may need to approach the lender with a counteroffer, but again do not offer more than the vehicle is worth or more than you can commit to. If the lender refuses to negotiate, you may need to consider other options for dealing with the outstanding debt and the potential loss of the vehicle.

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Acceptable Debt Ratio

Debt is a common problem, especially in today's world where it seems everyone uses credit to pay for things. But debt doesn't have to be excessive. You can use credit responsibly by thinking about your spending habits and making sure you understand what an acceptable level of debt is.

Personal Tolerance for Debt

If your debt is causing you stress, that's the first sign that you have exceeded your acceptable level of debt. Develop a plan to pay off the debt. Make a realistic budget and figure out a time frame for paying everything off and post the plan in a visible spot to remind yourself that you're working on it.

Debt-to-Income Ratio

Calculate your debt-to-income (DTI) ratio by dividing the total amount of your debt by your annual income before taxes. Banks and credit lenders usually consider a DTI of less than 30 percent as acceptable; anything higher is considered "over-extended."

Mortgage and Loan Approval

Banks and other financial institutions set specific limits on debt-to-income ratios when you apply for a loan or a mortgage. When you apply, provide proof of income, such as pay stubs, and you'll have at least one interview either face-to-face or over the phone with a representative. The key to being approved for a loan or mortgage is to be prepared to answer any questions about your income and assets and to have an acceptable debt-to-income ratio. For mortgage loans, the lender calculates two kinds of DTI: front-end and back-end. Front-end DTI is your mortgage payment versus your monthly income, and back-end DTI is the amount of your total liabilities versus your monthly income. Banks often will not approve mortgages where your front-end DTI is over 28 percent and they won't approve mortgages or personal loans if your back-end DTI is over 36 percent.

Private Financing

It's important to note that when you apply for financing through third parties, such as when you buy a car from a dealer, you may be pre-approved by the company selling you its product. But when you go to get the financing, the dealer or company still goes through a bank that will be assessing your debt-to-income ratio, your credit score and your credit history. So be aware that when a third-party says you're approved for financing, they probably just looked at your credit score and not your debt. When the bank goes to finalize the loan, the standard of 36 percent DTI will still come into play.

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