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Uncovering the Mysteries of Prepaid Credit Cards
If you are having trouble with your own personal finances and would like an easy way to budget for spending money, you are unable to have a credit card due to poor credit, or you want to give the perfect gift to a hard-to-buy for friend, family member or colleague, a prepaid credit card might be just what you need.
The Basics of Prepaid Credit Cards
You can open a prepaid credit card by depositing money into its account, which means it is similar to making a deposit to open a regular bank account. Once the money is deposited, you are issued a prepaid credit card that can be used anywhere credit cards are accepted. Because it works similarly to a debit card, you will never go into debt using your prepaid credit card. The other difference between prepaid and regular credit cards is that prepaid cards do not have bills, interest charges, or late fees attached to them, which often saves you money in the long run.
However, all prepaid credit cards have some type of fee, whether it be a:
- start-up fee of $5 to $15
- small weekly maintenance fee
- monthly maintenance fee
- deposit fee
Another small downside to prepaid credit cards is that you may not be able to charge monthly payments to them, because some businesses are wary of working with prepaid credit cards. If, for example, you wanted to pay for an expensive piece of furniture over several months through automatic deductions to your prepaid card, the furniture company may not allow this.
Finally, it is important that you make sure you know your card balance before making a purchase. If you lack the funds to pay for something, your charge will often be denied. However, because the card balance is available online, keeping track of your balance takes only a few clicks of the mouse.
Benefits That a Prepaid Credit Card Can Offer You
Aside from the obvious benefit of keeping you out of debt, prepaid credit cards offer a variety of other perks for the average consumer, including:
- Increased Security—If your prepaid card is stolen, the thief would only be able to charge as much as you have on the card, which could potentially save you thousands of dollars. Many prepaid card companies also have theft protection, which means that you will not be liable for purchases made when the card is stolen.
- Paying Online—Having a prepaid card will enable you to pay your bills and make purchases online. Online payment is not only convenient, but sometimes required for certain companies. It is also especially helpful for making travel arrangements and booking plane tickets and hotel reservations.
- Improved Credit Score—Many prepaid credit card companies will send reports to credit bureaus for a small monthly fee, just as if you were using a regular credit card. This will improve your credit rating and save you a good deal of money, especially when you apply for mortgages or car loans.
- Direct Deposit for Paychecks—Your paycheck can be automatically deposited onto your prepaid card (this often involves a small fee), which is much more convenient than going to a bank or other financial institution to make the deposit.
A Good Choice for Teenagers
If you would like to teach your child how to best manage their money, prepaid cards will certainly help give them the structure they need to curb overspending. Providing your teenager with a prepaid card might prevent them from going deep into debt soon after they leave the house when they are plagued with offers for high interest rate credit cards.
Prepaid credit cards provide a modern take on an allowance for your teenager. Load as much money as you like onto the card, and you will be able to track your child’s spending habits online. All of their purchases—from movie tickets, to a late night diner bite, to a new CD, etc.—will be clearly delineated for you to see. With this knowledge, you can help your child understand their spending and improve their basic knowledge of budgeting and money management.
Another perk to giving your teenager a prepaid credit card is that their spending mistakes will not hurt your credit. If the child spends all of the money on the card, it does not appear as a “maxed out” credit card on your credit rating.
Final Words
With their many perks, prepaid credit cards are a great choice for a variety of consumers, especially those who are rebuilding their credit or have little to no credit card savvy. Still, it is important to read the fine print on all prepaid credit cards so that you understand the fees involved in the transactions. The more knowledge you have on your card, the more responsibly and safely you can enjoy it.
About the Author:
Paul Basco Provides Expert opinions and reviews to help you Compare and Apply for a Credit Card Offers online. At GettintingaCreditCard.com, we offer credit cards for bad credit, low apr credit cards, instant approval credit cards and much more.
This article may be reprinted in accordance with the GettingaCreditCard.com Reprint Requirements
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