Prepaid Credit Cards

Prepaid credit cards are not just for people who have poor credit. Many of us think that the only reason you would get a prepaid credit card is because you could not get approved for a traditional credit card. In reality, that is not always the case. Prepaid credit cards are used to help control spending or to lower the costs associated with credit card ownership.

Credit cards have become a basic necessity, whether we like it or not. You need credit cards to make online purchases, to reserve hotel rooms, and to book hotels and tickets. Moreover, credit cards are a necessary first step in establishing, or re-establishing as the case may be, your credit standing. Carrying a card is also much more convenient then carrying cash. Imagine how much longer it would take you to get petrol if every time you filled your tank you had to leave your car and go into the cash register to pay with cash or cheque. That is if the petrol station even takes cheques, if not you have to carry a pile of cash in your wallet at all times. Not at all convenient, or even safe.

On the other hand, credit cards come with a certain amount of cost. Whether it is in annual fees, interest, or account maintenance you can expect to spend at least $40 each year to own a credit card. The only way around this is to get a true no annual fee card and then pay off your balance every single month, so you are never charged interest fees. Of course, to get a deal like that you will have to have a pretty great credit file.

Using A Prepaid Credit Card

In all of these cases, including those with poor credit, the answer is a prepaid credit cards. A prepaid credit card functions exactly like a traditional credit card. You can use it anywhere that accepts cards that carry the same logo, usually Visa or MasterCard, as the one you own. You can make online and telephone purchases with ease. In fact, many times no one will know that your card is prepaid and not a regular credit card. The only difference between using a prepaid card and a traditional credit card is that you load the prepaid credit card with money before you use it. In a sense you are simply setting your own credit limit, rather then having it set for you by a card issuer. You decide how much you can afford or want to carry on your card and then add it to the balance.

Just like any other credit card you simply swipe your prepaid card through the reader and it automatically deducts the transaction amount from your balance. If you want to remove cash all you have to do is go to an ATM and use your Personal Identification Number (PIN) to withdraw it from your debit card. The cards are as secure as regular credit cards, as long as you keep your PIN a secret you have little risk of losing your cash. Some issuers will protect your balance should your card be lost or stolen, but you should verify all security protections when you get the card.

When your balance begins to run low all you have to do is reload the card with more money. A lot of these prepaid cards are affiliated with banks so you can easily link a bank account to your card. Even if your card is not issued by your financial institution reloading it is usually only a matter of logging on to a website or making a phone call. The money you put on your card is usually available within 24 hours.

Costs Of A Prepaid Credit Card

Prepaid credit cards also carry less cost then most regular credit cards. When you use a regular credit card you are actually getting a short term loan from the card issuer and they charge you for that service. Again, the only way to avoid being charged for regular credit cards is to pay no fees and no interest, a feat that is pretty hard to accomplish. Most prepaid cards will have a small fee associated with them, to cover maintenance of your account. This is usually a very small amount that hovers around $10 per card. There also may be small fees assessed each time you reload the account.

However, these charges are very low compared to annual fees of traditional cards that can be anywhere from $45 to $250 and up. When you add this to interest fees of at least 10% per annum it is easy to see why prepaid cards are so much cheaper to own then a regular card. Obviously, with a prepaid card you give up the benefits that traditional cards carry, like purchase protection, trip insurance, and rewards programs. But, for those who are unable to qualify for these cards or simply unwilling to pay the costs of them the benefit is worth the loss of those perks.

Who Should Use A Prepaid Credit Card?

The short answer to that question is anyone. But there are specific cases where prepaid credit cards are ideal. Those people who will not be approved for regular credit cards are ideal candidates for prepaid cards. It gives them the convenience of credit card ownership without the need for a good credit history. In addition, using a prepaid card wisely can help to improve your credit rating allowing you to be approved for a regular credit card in the future.

Another great candidate for prepaid credit cards are kids and students. As a parent you want to teach your children about spending and cash flow, prepaid credit cards are good ways to do that. You can control how much money your child has at their disposal, they can control how they spend it. They also get to see the results of how they spend their money, when the card runs out or when it still has plenty saved up for a big purchase. Prepaid card also work great to help support your university student while they are away. You can add money to their account easily and they will have access to it quickly. Because the prepaid cards are accepted worldwide, parents will never have to worry about their child being stranded without funds.

If you need to find a way to control your spending, the prepaid card can be a great help. Those of us who have trouble sticking to a budget will find it a lot easier when the card is loaded with our budgeted amount for the month. Once that amount is spent, you simply can't spend anymore money. You will never have to worry about winding up in debt because of overspending again nor will you have to be concerned about interest and overage fees due to that spending. All the money you spend will be your own, not a loan. You have the power to stop your overspending but still have the convenience of a credit card. Don't convince yourself that you need a 'real' credit card. While you need a credit card, in most cases a prepaid card give you the same convenience with none of the risks of a 'real' card.

How To Choose A Prepaid Credit Card

Just like traditional credit cards you have to look at your lifestyle when you choose a prepaid credit card. Ask yourself, what exactly do you need from your card? If you are on the road often, or just prefer to use the Internet then look for a card that allows you to reload it online. If you want to keep track of your expenses this way then the card should also have a website that you can track your expenses and budget on. Those who travel will want a card that can be reloaded any time of day. Especially if your travels take you to different time zones it will be important to be able to reload when it is convenient for you to do so.

In addition to the reload options you will also want to check on fees. As mentioned before most prepaid cards carry some fees. Make sure that your fees are comparable or less then those charged by other card issuers. The fees charged for opening a prepaid card and for reloading may not be the only charges. If you plan on having more then one card there there may be a charge for the additional cards. If possible, try to find a card that does not charge for additional cards if you have this need. Your financial institution is a great place to begin your search. They probably have easy and inexpensive ways to link to your accounts.

Conclusion

Prepaid credit cards are usually associated with bad credit so many people steer clear of them. Although prepaid cards are a great option for those who have made financial missteps they are also good for other people. When you want to track the spending of yourself or your children these cards can help you do it. By using a prepaid card you can save money on fees and completely avoid spending any money on interest. Before you completely disregard prepaid credit cards think about the benefits of owning one. Whether it is for yourself or to keep track of your children, they might be an excellent option.

When you need a card that has little cost but all the convenience of regular cards take a look at prepaid credit cards. You might be surprised to find that they do suit your need and may even make your finances easier to manage. All of that with the same acceptance as any standard credit card.