Is a Prepaid Credit Card Right for You?

Sep 12, 2009

Prepaid credit cards are gaining in popularity as consumers are moving away from carrying heavy debt. Some are cards for specific stores – such as gift cards – but many are using pre-paid cards from Visa and Mastercard.

Pre-paid credit cards are really nothing more than debit cards, because you’ve put the funds in yourself and you aren’t actually “charging” anything. However, they can be used anywhere credit cards are accepted.

But what’s the point, when you have to pre-load them with your own money?

Carrying plastic is a convenience, and some feel it is safer than carrying cash. Plus, there are some purchases that simply can’t be made with cash. On line, for instance. Some retailers will accept an electronic check, but not all will.

And for consumers who can’t get a checking account because of a history of bounced checks, they’re the only way to make on line purchases.

Who else uses pre-paid credit cards?

Employees whose employers pay them via direct deposit on their prepaid cards.
Gift givers who want the gift recipient to have a choice of stores.
Parents of college students who want to hold down their child’s spending, but like the convenience of being able to “re-load” the card when funds get low.

Pre-paid credit cards are a little different from retailer’s gift cards in that they can carry fees. Thus it pays to shop around and compare cards before you choose.

The fees charged can vary widely and can mount up. Some card issuers charge for application, activation, and annual or maintenance fees. Some also impose a fee each time the card is used, each time you call for customer service, each time you make a balance inquiry at an ATM, and any time you request paper statements.

If you opt for a pre-paid credit card, be sure to register it when you receive it, and record the registration number where you’ll be able to find it easily. When you register the card you’ll be eligible for fraud protection if the card is lost or stolen. These cards carry zero liability policies, but only if you notify the card issuer right away.

As with all credit and debit cards, you could experience “holds” when you rent a car, check into a hotel, or fill up at the gas pump. Be sure you have enough money to cover both the hold and your purchase.

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