The great thing about a prepaid credit card is that you can spend the lot of it without worrying. The functionality of a prepaid credit card is really quite simple. It is not too different from a regular card, but it comes with a limit. Once you load up your card, it will be good anywhere the brand is accepted. Each purchase will deduct from the overall total until you finally run the card out. Some prepaid cards are able to just be reloaded, but others will just be used up.
In the latter case, you would have to get a new card. There are many instances when it is just going to be far more convenient to use a regular credit card. Everyone should know that purchasing gas is much quicker if you can just pay at the pump. I would not recommend carrying thousands of dollars in your wallet.
The real question then just comes to why you should use a prepaid version. A lot of people will testify that the prepaid card is a great idea. First, a prepaid card is great for a teenager who really needs to learn proper spending habits. Every parent should want their child to develop healthy spending habits that will greatly benefit them throughout their adult lives.
Unfortunately, the power of a credit card is sometimes too great and debt can build up very quickly. Before you know it, their credit is damaged and they have to pay high interest payments on a bunch of worthless purchases. In the case of such people, a prepaid credit card would have been a blessing. This card would have locked them out at the amount that the parents gave them while still giving them the convenience and freedom of a credit card.
Second, the card would be a great idea for someone who is seeking to stick to his/her budget. A good financial planner will be able to set aside how much money he is going to need on their credit card throughout the month. In order to forcibly stay within their budget they can choose to just buy prepaid credit cards. This will also enable them to avoid the high interest that has to be paid when maintaining a regular credit card.
Third, it can be very good for someone who has bad credit. All you need is a bank account with some money in it. A person who has made bad credit decision in the past will have great difficulty in getting a good credit card in the present. Prepaid cards are the perfect go between for convenience while they wait for their credit to recover.
Finally, herein lies a great solution to credit card theft in the online arena. If information from a prepaid credit card is stolen, they will only be able to use the money on the card. So the loss is also limited. Anyone who wants to make a few purchases online should greatly benefit from a prepaid card.
If you are looking for something other than the regular credit card, maybe you should take a look at all the prepaid credit cards available in the market.
1. They Don't Do Anything For Your Credit
Some people have made the mistake of confusing prepaid credit cards with secured credit cards and then regretting it when the damage was already done. It's important to understand that there is a huge difference between these two financial tools.
The only real similarity between secured credit cards and prepaid credit cards is that both of them require money up front and the amount you supply determines your available credit (or balance). That, however, is where the similarities end.
Unlike secured credit cards, prepaid credit cards do not offer a revolving line of credit, you do not earn interest on the money that was used to establish your initial credit line and your account activity isn't reported to the credit bureaus.
All things considered, prepaid credit cards are not a good idea if you want to re-establish your credit history or establish a revolving line of credit. However, if you want to give someone a gift or put your child's allowance on plastic, prepaid credit cards might be a solution.
2. The Good, The Bad and The Ugly
Like most financial tools, not all prepaid credit cards are equal. Some are good, some aren't so good and some are downright ridiculous.
Before purchasing prepaid credit cards, it's essential that you know the terms of the card you're buying. Believe it or not, some prepaid credit cards not only charge a monthly fee, they actually charge you money every time you use the card.
If you charge your $4 coffee house order with your prepaid credit card, you might actually be paying $5 for that cup of joe after the credit card company tacks on their $1 fee. Then, to add insult to injury, the credit card company may bill you almost $10 a month for the privilege.
Make sure you are familiar with ALL of the fees (including monthly fees, transaction fees, deposit fees, etc.) before committing to any prepaid credit cards.
3. Where'd It All Go?
So you get a prepaid credit card for $50 and you have it in your wallet for a four or five months. Then one day you go to use it on a $30 purchase but the card isn't working. You call to find out your balance and you realize it's less than $20. How did it happen?
Well, if you're not careful, those monthly fees can quickly add up. If you buy a prepaid credit card with a monthly fee of $6.95, after five months that card is going to have incurred charges of $34.75. That means your $50 card now only has an available balance of $15.25 and you haven't even used it yet!
Remember, when dealing with prepaid credit cards, what seems like a nominal fee can really add up over the months and you need to be careful. Not all prepaid credit cards are bad, but if you aren't careful and you don't look at the small print, you may end up with one of the ugly ones.
Both Ajeet Khurana & Max Anderson are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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