A Viable Alternative to Credit Card Debt: Prepaid Credit Cards

For some people, having a credit card in hand is like giving a beer to a recovering alcoholic. They mean well, but have trouble abstaining. The problem is compounded by the fact that in today’s society, there are many occasions (such as renting a car, selling on ebay or ordering online) when you really do need a card.

This is where a prepaid credit card can be especially helpful. Originally designed for adults with poor credit ratings, prepaid credit cards are also becoming a valuable tool for parents of teenagers. The credit limit on such cards is determined by how much money is placed in the bank. This fact alone can teach an important lesson: if the money isn’t there, they can’t spend it. Rather than enabling us to spend money we don’t have, credit cards should be tools of convenience.

Not Free
It’s impossible to get a late free on a prepaid card, as there is nothing to pay off. But there are annual fees, monthly fees, activation fees, customer services fees, ATM cash withdrawal fees, fees per purchase on prepaid cards and even inactivity fees. So it pays to shop around before picking a card.

There are scammers in the prepaid credit card business too, just as there are in just about any business. If your prepaid credit card company is tacking on $1 every time you use the card, or $10 per month just to carry their plastic, beware. There are better alternatives available, but it’s up to you to find them.

Not always accepted
There are also some gas stations and car rental companies that do not accept prepaid credit cards. The logic behind this seems unclear and the incidences may be minor, but the fact it, your prepaid VISA may not work “everywhere you want to be” and this is one drawback to consider before getting a prepaid card.

Neutral on your credit
While prepaid credit cards won’t tear down credit, they don’t build it up either. If your goal is to re-establish your credit history, a secured credit card might be the better way to go. Prepaid credit cards are a great tool for gift-giving or spending money for your child, however.

The bottom line is you need to do your homework before buying a prepaid card. The bank has to make money somehow, so even the best of deals is going to cost you something. With a regular credit card, the bank makes their money on interest, late fees and penalties. If you have good credit and the willpower to manage a regular credit card wisely (e.g. never charging more than you can pay off each month and never being late on a payment), a regular credit card will always be your less expensive option. But if or one of your dependents really has trouble keeping the balance in check, a prepaid card may be just what the doctor ordered.

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How to Avoid Student Credit Card Debt