Prepaid Debit Cards

Prepaid Debit Cards

Last Updated: December 22, 2011

Check Out Our Recommended Debit Cards

If you're frustrated because it seems as though a credit card is necessary to get by in today's world, and you've been unsuccessful getting one due to a poor credit history, you might consider a prepaid credit card. You'll have most of the advantages of a credit card, and you won't haveto worry about interest charges. One significant benefit of the prepaid credit card is that you can charge to your heart's
(I mean your deposit limit's) content, and you won't be in debt; the money is yours and once it's gone, you can't spend any more until you add more funds.

What is a Prepaid Debit Card?
A prepaid credit or debit card account is opened by depositing money into an account you establish with the card issuer, much in the same way you would make a deposit to open a checking or savings account. Once you fund the account with a designated amount, you are issued a prepaid credit
or debit card that can be used anywhere one would use a regular credit card. A prepaid credit card is not really a credit card, as no credit isoffered by the card issuer; the card-holder simply spends money which has been "stored" via a prior deposit by the card-holder or someone else, such as a parent. It's very similar to using a debit card linked to a savings or checking account; there are no monthly bills associated with the card, or interest charges; but there are still fees involved, so consumers should always do their research and understand the cost of their"credit".

Why Are These Called Credit Cards?
The reason why the word "credit" is associated with these prepaid cards is because most cards carry a credit-card brand (such as Visa orMasterCard) and can be used in similar ways. It's really no more than a stored value card that can be used in multiple locations due to the Visa(or other credit card) insignia. As more consumers require a suitable solution torebuilding credit, recent changes have allowed some credit cardcompanies to offer pre-paid credit cards to help rebuild credit. However, they are harder to find, and many have higher fees associated with them; so make sure you do your research. Many pre-paid products falsely claim they will improve your credit rating.

Benefits of a Prepaid Credit Card
1. There is no such thing as overdrafting your account; you cannot exceed your limit.
2. Prepaid credit cards can be a big advantage to low-income consumers who might otherwise be stuck dealing in cash, unable to make such basic transactions as paying for gas at the pump, paying bills online, or making car rental or hotel reservations.
3. Contingent on the card you select, your money may be protected if your card is ever lost or stolen.
4. Prepaid credit cards are a convenient way to pay for goods when traveling, even outside the U.S.
5. Prepaid credit or debit cards are often marketed to teenagers for shopping online without having their parents complete the transaction, or as a convenience for parents wishing to provide funds to children away from home.
6. Obtaining a prepaid credit card is easy, fast, and requires no credit check.
7. Some prepaid credit cards today report card history to major credit bureaus, so cardholders may be able to build or rebuild their credit using a prepaid credit card without the risk of damaging it along the way.
In summary, prepaid credit cards are a good solution for anyone who does not want to be tied down to a banking institution, anyone wanting a more secure way to carry their money than simply cash, or anyone having troubles being approved for a credit card. In today's society that is more and more cashless, somebody who doesn't have access to cashless transaction vehicles is at a major disadvantage.

Disadvantages to Prepaid Credit Cards
There are a number downsides to the prepaid card.
1. Most cards require a start-up fee, and while for many companies this fee is minimal, some of them are substantial. In addition, you'll most likely have to pay additional fees each time you deposit more cash into your prepaid credit card account; perhaps not as much as the initial fee, but a fee, no less.
2. Some cards will allow you to add more funds for free, but may charge a monthly "maintenance" fee instead.
3. Another downside is that many businesses that accept automatic payments from bank or credit card accounts may not accept them from prepaid cards. For most consumers this is a minimal annoyance, but for some it can be a significant setback.

As with any credit product, when selecting a prepaid card you should always do your research and make an informed decision on the best card to meet your individual needs. As stated previously, there may be a number of different fees associated with using a prepaid credit card, some of which might be high enough to offset any benefits. A prepaid credit card will generally carry more fees than a secured or unsecured credit card (presuming you pay them off monthly) therefore a prepaid card may only be a good option for those who cannot obtain any other form of credit, but require the convenience of a credit card. 

Now let's define some of the fees you might encounter in researching the available prepaid credit cards:
-Sign-up or Start-up Fee: Self-explanatory. May range from "free" to $50.
-Transaction, POS, or Usage fee: A fee assessed each time you use the card at a store, online, by phone, etc. Typically it is "no charge", but there might be a small fee (under $1.00).
-ATM Withdrawal fee: Can range from "free" to $5.00 or more. May be higher for International withdrawals.
-Monthly Maintenance Fee: A fee charged to your account each month. Sometimes there is no fee for the first few months, and then one kicks in after 6 months; can range from "free" to $10 or less.
-Reloading or Recharging Fee: A fee charged to you for adding more money to the account where your money is being held. Depending on the method used to add or transfer the money (at a retail location, using another credit card, cash, etc) the fee may differ. Typically "free" to less than $5.
-Balance Inquiry Fee: A fee to provide you information about your available balance. Can vary contingent on the method you use to request the information: online, telephone, ATM. May range from "free" to $3.00 or less.
-Monthly Statement Fee: A fee for obtaining monthly transaction history. May be up to $10 if sent by mail, however is typically free of charge if you go to the card issuer's website.
-Cancellation/Refund Fees: A potential fee for cancelling your card altogether or requesting a partial refund of monies loaded onto the card.
-Insufficient Funds/Overdraft Fees: A fee charged if you attempt to make a transaction and it is refused to to inadequate funds in your account;or, it goes through anyway but you exceed your limit. Usually under $3.00.
-Foreign Currency Conversion Fee: A fee, usually a percentage of the total amount spent, charged to convert from another currency during international transactions/travel.
In Summary: Check out the various types of pre-paid debit and credit cards on the market. Read the terms and conditions carefully, and define your objectives for needing this product.
Depending on your individual needs, you may find that a traditional credit card, a secured credit card
or a debit card will work better for you and save you money in the long run.

Here are a few Prepaid Debit Cards We Highly Recommend:

Most Hated Fees and How to Avoid Them

Most Hated Fees and How to Avoid Them:

Fee for using an ATM not associated with your Bank, Financial Institution or Network. Fight Back!: Download Smart Phone apps that help you locate the nearest ATM in your Network (Bank of America, Chase, Wells Fargo all have apps). Another Tip is to buy a small item such as a pack of gum at Walmart and get cash back on your debit card at no fee to you unless your card issuer charges you to use your debit card as a debit card.

Fee to cancel cell phone contract to change to another carrier. Fees range from $150 - $350 per contract. Fight Back!: Stick it out with your carrier until you know your contract is up, then switch to a prepaid account or try to talk your way out of the fee if you have documented proof that you have received poor service. You can always threaten to file a complaint with the Better Business Bureau online (while you still have service with that carrier). Canceling your contract and not paying the cancellation fee will result in a black mark on your credit file causing your score to drop.

Checking account Monthly Fees. The average cost for an interest bearing checking account for 2009 was $12.55 per month. Fight Back!: Choose Free Checking while it still exists; place your excess cash in savings and transfer to checking online as needed which frees up your cash for other investment avenues as well. Be sure to download Smart Phone apps for your Financial institution and for online access to your account so that your alerts are in place and you will be notified by text and email when your account falls below a certain amount to avoid even uglier fees.

Bank Overdraft Fees. Checking account overdraft/NSF fees can range from $25 to $40 per item (not just paper checks anymore) and "auto" transfer of your money completed by a bank computer to take money from your savings account and move it to your checking account fees range from $10 to $20 per "auto" transfer. Fight Back!: Sign up for your banks website for email and text message alerts to tell you when your checking account falls below a certain amount. That way, you can deposit cash before a certain time (say 4pm) or transfer from your savings account yourself online for free.

Fee for not using your credit card or not using it enough. Fees are being levied on card holders that don't charge much to their credit cards. Fees range from $40-$60 per year per cardholder. Fight Back!: Look into switching to a card issued by a credit union because they typically charge fewer fees or switch to a debit card advertised within this blog that fits your current criteria and needs if you use your account sparingly or if you want to refer others and make a commission of up to $20 for you and $10 for your referral (terms and conditions apply for each offer).

Fee to close your Home Equity Line of Credit (HELOC). If you close your HELOC within three to four years of opening it, you could very well be charged from $250 to $750 for doing so. Fight Back!: Keep the line of credit open even if you don't plan to use it or ask in advance if they will wave the fee if you refinance your mortgage.

Fees to close your IRA or Brokerage Accounts. Fees range from $50-$200 depending on the account. Fight Back!: Appeal to the company you want to move your account to because many will reimburse you the fee you encounter to do so. After all, the fees are always negotiable.Annuity fees for Variable Annuities. Fees tend to range from 2-3% on these tax deferred annuities. Fight Back!: Go with a lower cost immediate annuity. Already in a variable annuity? Check out the "Surrender" charges before switching.Mutual Fund Fees 12b-1s which is being charged to help fund their advertising of the fund you are investing in.

Fees average $5.80 per $1000 invested yearly. Fight Back!: Move to a fund that doesn't charge 12b-1s like Vanguard Funds. When shopping for funds, keep the total expenses under 1% for actively managed funds; 0.3% for index funds.

Fee for checking your luggage before your flight. Fees range from $15-$45 for the first bag, $25-$35 for the second one. For a family of four, these fees can easily reach $200 one way. Beginning August 1, 2010, Spirit will begin charging $20-$45 for each carry-on and others are sure to follow soon after. Fight Back!: Use an airline that gives you one free checked bag per flight or pack lightly in a soft sided carry-on bag with exterior dimensions of no more than 45 inches and length no more than 21 inches.