5 things to know about Prepaid Cards

Sat, Jun 16, 2012

Financial Advice

You may not have a choice

Whether you like it or not, plastic cards are here to stay. Prepaid cards play an important part in day to day transactions, both large and small. Many people are forced to buy prepaid cards because of bad credit scores that is a direct result of bad financial planning. The only option when you do not want to carry cash or no bank is willing to let you bank with them due to your bad financial track record is buying prepaid cards. There are several establishments that insist on card payment and refuse to accept cash.

Prepaid cards can be convenient

For those of you living in an area where there are hardly any bank branches, prepaid cards are the only way out.  With facilities to reload prepaid cards at major stores, you have more places to reload than you have bank branches. With more ATMs dotting the low-income area neighborhoods, access to ready money is easier than through the bank ATMs that are less in number. Prepaid cards are best for people with poor credit scores and those living paycheck-to-paycheck.

The costs can be prohibitive

A major drawback with prepaid cards is that the basic annual fee, other monthly charges, ATM usage costs, and reloading fees all add up to a lot and prove to be prohibitively expensive. Besides these there are a hundred other fees like activation fees, bill payment fees etc, where a fee is charged for the flimsiest of reasons. Comparatively, banks do not have any such fees apart from ATM usage fees (whenever the minimum balance is not maintained) and there are no reloading fees as you just need to deposit money into your account.

They don’t do much towards your credit rating

While prepaid cards don’t affect your credit rating adversely, they don’t help much in building your credit either. Though some companies claim that they report credit scores and promise credit score trackers, there is hardly any evidence that they help build your credit scores in any way. A good alternate for this would be a secured credit card that is actually funded with your own money and reports are generated and sent to major credit bureaus.

Prepaid cards don’t offer much protection

Unlike debit cards of banks, prepaid cards cannot offer protection provided by debit cards attached to banks. Cases of fraud or theft can be reported to banks that take sole responsibility and refund the money involved in the fraudulent transaction. However, with prepaid cards there is no such guarantee and a lost card can be misused,  and remain undetected till the balance gets exhausted and all your hard earned money is lost.

This is a guest post by Mark Dwayne of buytimewarnercable.com, a site that offers savings and current information on Time Warner Cable.

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