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Prepaid credit cards
Question: I received a Visa Prepaid card as a gift. I assume my friend meant to give me a regular gift card, but it seems they grabbed the incorrect and rather odd Card at the check-out. This reloadable Visa Prepaid Card requires me to register (giving my SS#), and it comes with loads of fees ($5.95 monthly maintenance fee, $3.95 Purchase fee per transaction...).
I'd never heard of prepaid cards, and am interested in learning who would use them and their advantages and disadvantages. I already have regular credit cards and use them wisely. Will registering in order to use this card impact my credit score at all? Is it best to register and then spend the entire balance all at once on one purchase? Can I get the balance in cash at a bank and be done with it? Thanks! Eric, Granville, OH
Answer: I'd spend the money and then "retire" the card. I wouldn't recharge it.
Everyone is trying to lower their debts and curb their spending these days. That's good for household balance sheets but bad for lender profits. For instance, the savings rate is higher than it has been for the past 15 to 20 years. The number of credit card accounts is down more than 23 percent since the 2008 peak. Debit cards are more popular than credit cards. Household debt service as a percent of disposable income is down a remarkable two percentage points since the fall of 2007--the lowest level in a decade.
The pre-paid credit card (more accurately a prepaid debit card) is part of this don't-spend-more-than-I-make trend. It's hard to get into debt trouble since the cash is paid up front and you can't spend more than you put on deposit. There's no credit check. You don't have to work with a bank. You can use it for hotel reservations and rental cars even if you can't qualify for a traditional credit card. There's no reporting to the credit bureaus. What's not to like?
Plenty. It doesn't really work for many kinds of online purchases, such as subscriptions. But that's really a quibble. The real price tag is the steep fees buried in the convoluted, complicated agreement. It's an expensive way to do business. It may be sold as a behavioral finance tool these days--don't spend more than you want to--but the cost of discipline is too high. But it's a great fee product for the financial services institutions that are selling the product.
A genius of the financial services industry is to take a niche product and turn it into a mass market product. Sometimes the transformation is for the good, such as the rise of money market mutual fund in the 1980s. More often the niche product should remain just that. For example, interest-only mortgages could make sense for Wall Street bonus moguls in the 1990s, but when the technique spread to average homeowners it was a disaster.
You say you're a credit card user in good standing. There is no reason for you to use a prepaid card once you've exhausted your gift. It's mostly a niche product for those with a poor credit rating.
They are pretty much a scam by the credit card industry.
To label them as 'credit' in the first place is false advertising. They are just debit cards that guarantee that you get less out than you put in. (Just like Wall St).
For most situations hard cash works....
There are a few situations where cash no longer works, or you may need to leave a 'credit card swipe' as a deposit that these might work. But I doubt that normal credit card protections will also apply to these cards. The credit card industry will have made sure of that.
As a representative of the Network Branded Prepaid Card Association (NBPCA) I can provide some insight as to who is using general purpose reloadable prepaid cards and why.
Today’s economy runs largely on cards, rather than cash or checks, for security and convenience reasons. These cards open the door to large segments of the population who otherwise might not have access to the convenience, flexibility and security of card based transactions.
• An estimated 60 million Americans are considered unbanked or underbanked. These are individuals who have no bank account or have limited or no access to credit. Many of these Americans are forced to rely on a combination of cash, money orders and expensive pay-day loans. Reloadable prepaid cards allow these Americans, many of whom are minorities, access to our increasingly card-based economy and provide an improved sense of control and empowerment.
• For many Americans, network branded prepaid cards serve as a tool with which to more effectively budget their spending. With a prepaid card, consumers avoid the risk of over-spending or over-draft, thus avoiding the interest, fees, and potential negative credit score implications of traditional credit cards. And for parents, prepaid cards provide a tool to maintain control over their teen’s or college student’s spending.
• The Federal Government and State Governments use prepaid cards to quickly and easily deliver benefits to those who do not have a direct deposit option, as well as disperse disaster relief funds in a more easily tracked, cost effective and expeditious manner.
All these factors have contributed to tremendous growth in the industry and high consumer satisfaction. We offer additional consumer tips and an ask the expert column at our website http://www.nbpca.org/en/Consumer-Corner.aspx
I think it is rather unfair to credit the "credit card industry" for the success of <a rel="follow" href="http://www.prepaid365.com/" target="_blank">prepaid credit cards</a> as they had nothing to do with it. In fact, prepaid which does not involce credit and means that they cannot earn interest is the last thing the credit industry would advocate.
Whilst some of the comments may be true of general spend cards, travel and remittatnce prepaid cards definitely do not fall within the same bracket and are definitely vards which you should consider using and recharging as they result in significant savings.
