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The downside of prepaid credit cards

[Wednesday, November 3rd, 2010]

Getting a prepaid credit card is not a very bad idea for those who cannot seem to qualify for any other credit card but want to build on their credit. However, for many prepaid credit card customers, the theory of prepaid credit cards doesn`t turn out to be as good in reality. The prepaid credit card is similar to a regular credit card in terms of how it looks and how it is used. But there is a major difference. When the prepaid card customer uses the card for purchasing something, he or she is not borrowing anything from the credit card issuer. Instead they are just spending their own money. A consumer obtaining a prepaid card sends the company the amount that the card is worth. In a regular card, the bank covers your expenses and then sends you a monthly bill for all your transactions. It is the bank`s money that you have spent. You pay off in due time without interest or fee. However, in prepaid cards` case it is your money that is getting used up.

Although, it is obvious to guess that since it is your money, the terms would be at least similar to what they are for a regular credit card is not worse, it isn`t true. For example, if you pay 500 dollars to get the prepaid card, what you get is less than that because of the fees that is charged by the card issuer. To start with the fee keeps accumulating on it but you cannot make a second transaction until the first transaction is cleared out. A nice feature about prepaid credit cards is that you cannot spend more than the money that is there on your card. In other worlds you cannot go over the limit. That means if your purchase takes the amount over the worth of the card, the transaction will be declined at the point of sale. However, it isn`t theoretically impossible that one owes the bank some money in case of a prepaid credit card.

Unless customers cut up the card or deactivate it, they keep getting charged with the fees which may go way over than what the card is worth. In spite of all the fees that are charged on the cards, smart customers can find prepaid cards which have reasonable fees. There are a lot of ways to save on the fees too. Selecting credit card options over debit cards while doing a purchase is one of the ways.

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