Beware Of Prepaid Credit Cards

Beware Of Prepaid Credit Cards

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You thought you could cut your costs and improve your debt situation by getting a prepaid credit card. As the saying goes, buyer beware. I learned some of this the hard way after I received a prepaid credit card as a gift. I tried to buy one of my favorite Beatles CD's at an online auction. I was surprised that my purchase was rejected, even though I knew the balance was enough to pay for it. The real shocker was that when I called the 800 number on the card to double check the balance, they charged me $1.00 for the call!

I went to the website of the prepaid credit card and entered my account number. At least I could now clearly see why my balance was so much lower. I was charged $1.00 for the failed online purchase. And there was the extra $1.00 charge for the "toll free" phone call I had just made to check the balance. OK, so I am responsible for knowing the rules, but who would have thought I would be charged for making the call to check my balance?

Well, it seems these issues are common for many of the prepaid gift and prepaid credit cards. For many, these prepaid cards have become very popular because of their convenience. Retailers and credit card companies like them a lot too, for another reason. In addition to the fees they charge, there is also a significant percent of these cards that never get used up. It is estimated that 6% to 25% of the $24.81 billion total value of prepaid cards purchased in 2006 goes unspent!

So what do you need to do? Be sure to read the fine print. Fees can vary greatly and in general, prepaid gift cards from retailers, hotels and restaurants are the best value in terms of fees, but then you are restricted to purchases from that particular business. Prepaid credit cards from the card companies are generally different and you can expect to pay a fee right off the top to cover "processing".

Then watch out for a long list of other charges. Some charge for simply using the card, checking your balance and for even registering a card so you can use it for online purchases. Then there are monthly maintenance fees that could be tacked on. I am all for a business covering its costs, but this sounds excessive to me.

These cards also usually require you to know the exact amount left on the card to use the remaining balance ( nice trick since you may be charged to find out what that amount is!). Fortunately, most retailer-direct prepaid gift cards are free from this pesky habit. The store will swipe your card, deduct the remaining balance and ask you to pay the difference.

Don't rule out your local bank as a place for good deals on prepaid credit cards. They often have fewer fees and are less restrictive. And don't forget that all distributors of prepaid gift and credit cards are required by law to explain what fees and charges you are subject to. Do yourself a big favor and check these out and you could save yourself a lot of money and disappointment. I did not get that Beatles CD, but I used the lesson I learned and emptied the balance of my card on a copy of a U2 CD that I have really come to like a lot.

About the Author:
Paul McDermott reveals more of his hard earned lessons on prepaid credit card debt relief and finances over at Get Out of Debt Tips .
Don't reprint this article. Instead, reprint a free unique content version of this same article.



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