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The difficulties with prepaid cards

[Monday, October 18th, 2010]

For someone who is trying hard to get their first credit card or wants a way out to get back on track with their credit scores prepaid credit cards seem like the best deal. However a lot of the time this theory is not really practical due to a number of reasons.

A regular credit card is not very much different from a prepaid card excepting one distinctive trait that is there. When you spend on the prepaid card you are not borrowing money from any credit card company, rather you are spending the money you have.

The company allows consumers with prepaid cards to decide how much money they would want to be able to spend using the card. If the consumer decides to say spend $500 they have to pay about $500 to earn that purchasing power, in theory.

The case is different when it comes to a regular card, as it involves people using money borrowed from the bank and then being billed for the purchases that are made. There is no fee or interest tacked onto the card if the payment is made on time.

Reasonable or not

When you are spending money that is your own with a prepaid card, it stands to reason that it should be as popular as a regular credit card. The reason is that there are other fees that come into the picture with a prepaid card. Therefore, the consumer who decides to send in $500 for use on their prepaid card will in fact have less than that amount to spend on it. There will be different kinds of transaction fees, maintenance fee, customer service fees and lots more that may be there on a prepaid card following its activation which tends to make it quite an expensive affair. Often despite the money being your own, the fees continue to add up and things have to be cleared out before you can use the card further which tends to be rather cumbersome for many consumers.

The advantage of using a prepaid card is often one simple fact, that you spend only the money you put on it. There is no overspending and if the amount you wish to spend is over the available limit on the card, you can end up being declined. Thus you will not spend beyond your means, but you can still owe the bank money through fees and penalties that may be there.

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