Beware of Prepaid Credit Cards
by Paul McDermott
Imagine my frustration - I had found an old Beatles CD I had been looking for in an online auction site but my prepaid gift card was being refused as payment. I knew I had exactly enough money left on the prepaid debit style card for the LP and shipping because I had just checked my balance - what could be the problem? To be sure, I dialed the 800 number on the back of the prepaid gift card again and punched in the card numbers. The automated voice told me that my prepaid balance was now $2.00 less than it had been just minutes before, and I had not even used the card!
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".
In addition to upfront fees, look out for the long list of other ways your balance gets whittled down. Things like checking your balance, refused transactions, registering your card for online purchases can all cost you money.
And as we found out, you need to know the exact amount left on your card. If you try to use your card and don't have enough left on it, you cannot use cash or another card to pay the remaining balance. And guess what? You'll be charged a fee! But don't call to check your balance, either, or you may pay another fee like I did. Again most retailer prepaid cards don't have all these fees and charges.
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.
Paul McDermott reveals more of his hard earned lessons on
prepaid prepaid visa credit card and finances over at
Get Out of Debt Tips . This and other
unique content 'prepaid credit cards' articles are available with free reprint rights.
