No Debt, No Doubt: Prepaid Credit Cards

Credit cards were originally created as a matter of convenience for businessmen. Today, everyone is expected to have one. Modern luxuries like online shopping and hotel reservations are almost impossible without a credit card. If you have bad credit or you're swamped in debt, these things are difficult to attain without a fee-ridden, interest-heavy account. Rather than plunge yourself into debt and all that comes with it, consider prepaid credit cards as a better spending option.

Prepaid Credit Cards Explained

Prepaid credit cards, also called "stored-value cards," are cards connected to monetary accounts, similar to a debit card. Once there is money in the account, the card can be used to purchase items the same way a credit card is used.
 
Prepaid cards have a Visa or MasterCard logo on the front, an account number, an expiration date and a verification number. They are accepted anywhere that credit cards are usually taken. While purchases are strictly limited to the amount of money in the account, there are no interest fees or bills to worry about.

Where to Get Prepaid Credit Cards

The most common sources for prepaid credit cards are popular banks and credit card companies. They can often be purchased online or in the bank itself, but certain types may also be available in supermarkets and drug stories. Purchasing a prepaid credit card does not involve a credit check, though it may have other terms and conditions.
 
Before you purchase a prepaid credit card, it is important to shop around and find the terms and options that are right for you. Pay attention to the fees and fine print in order to get the most value from your card.

Benefits and Drawbacks of Gift Cards

Prepaid credit cards give you the flexibility and spending power of a credit card, without the burden of debt and compounding interest. Some prepaid cards have begun reporting to credit bureaus as well, making them a viable option for people trying to rebuild their credit.
 
Uses for prepaid cards are generally unlimited, though some vendors may not accept them for purchases that involve installment payments or monthly charges. Since there is no guarantee that the card will have a balance each month, you may need to have an alternate payment method for these types of purchases.
 
Prepaid credit cards are great for personal use. They are handy tools for budgeting common items like groceries and gas, or they can be a great way to teach children how to spend and use credit wisely.
 
Prepaid credit cards can also be given as gifts. Instead of giving a retail gift card that is limited to certain stores and products, the recipient can use a prepaid gift card to purchase exactly what they want at the store of their choice. Once the card is spent, they have the additional option of reloading it and using it again.
 
Major drawbacks to the prepaid credit card are the fees and penalties that come with it. Initial deposit fees are almost unavoidable, and many issuers also charge for subsequent deposits made. Fees may also be accrued for withdrawing money through automated teller machines (ATMs).
 
Some cards may also have "expiration dates" that affect the total amount of the card. The money in the account is not meant for long-term storage, and may be decreased or absorbed by the bank if not used within a certain time frame.
 
The benefits associated with prepaid credit cards far surpass the cost of using a traditional credit card. With a prepaid credit card, you can take comfort in knowing that you won't get any bills, you won't pay any interest and your purchase is paid for in full.
 
Resources
 
Bruce, Laura (2002). Prepaid Cards -- Nice Gift, But Watch Those Fees. Retrieved March 11, 2008, from the Bankrate.com Web site.
 
WiseGeek (n.d.). What are Prepaid Credit Cards? Retrieved March 11, 2008, from the WiseGeek.com Web site.