• Lower your monthly payments
  • Reduce stress and live your life
  • Avoid personal bankruptcy court

The Good And Bad Of Prepaid Credit Cards

Photo of hand holding credit cardsDid you know that there are both prepaid credit and debit cards? Prepaid debit cards are probably the most popular and are used by many people to help rebuild their credit. The way these cards work is that you load a certain amount of money onto the card (usually $300 or $500) and then use it just as you would a credit card. The difference is that every time you make a purchase, the money is subtracted from the balance on your card. When you reach zero, you need to either load more money onto the card or just toss it.

Like prepaid debit cards

An article recently on the web site Bankrate.com noted that prepaid credit cards work about the same way as prepaid debit cards. There are two kinds. The first are cards that you receive as part of a promotion. For example, you might buy an automobile or a big-screen TV and receive a prepaid credit card as part of the deal. The second is where you load money onto the card yourself.

Read the fine print

As this article pointed out, if you do receive a prepaid credit card, be sure to read the fine print. Many of them have expiration dates. For example, as this article reported one woman received a promotional prepaid MasterCard with a balance of more than $350. But she soon learned to her dismay that the money was gone because the card had expired. The lesson here is to read the fine print very closely.

No replacement card

This woman had expected a replacement card but that didn’t happen. When she called the company that issued the card she found that her balance was gone and that was it.

The difference between prepaid credit cards and gift cards

It’s better to get a gift card than a prepaid credit card. The reason for this is that the balance on gift cards will never expire. In addition, prepaid credit cards may have other restrictions that are not listed on the outside of the package. Instead, the fine print is sometimes inside the package.

Higher fees

Another negative of prepaid credit cards is that you may end up paying higher fees when you use them in comparison with traditional checking accounts. Why are these fees higher? It’s basically because these cards are exempt from the consumer protection laws that apply to bankcards. Plus, they come with no line of credit. Whether your card comes with a prepaid balance or you load money onto it yourself, once the money is gone it’s gone.

The benefits of a prepaid credit card

A prepaid credit card can be helpful because you can use it everywhere a Visa or MasterCard is accepted. You could use it to make purchases, which eliminates the need to carry cash. You won’t pay any interest because you’re not actually borrowing money. A prepaid credit card makes it virtually impossible for you to create any debt because you can use only the amount of money that’s on the card.

The disadvantages

As noted above, the biggest disadvantage of a prepaid credit card is the fees you will be charged. For example, you may have to pay a flat fee just to open the card and another fee to keep it active. If you decide to get one of these cards, make sure you choose one with a low transaction fee as you will be charged one of these fees every time you use the card. And not all companies who offer these cards report how you use them to the credit bureaus. This means that even if you have and use one of these cards sensibly, it may do nothing to improve your credit score.