Prepaid Credit Card Considerations

A financial tool that has become more popular in recent years is the use of prepaid credit cards. Claiming to help consumers by avoiding late fees and missed payment penalties, prepaid cards are not as beneficial as many people think. In fact, if you are working towards better money management skills, a prepaid card could actually stand in the way of your goal.

Tricky Terms

Prepaid cards can help you avoid late fees or penalties for missed payments, but they aren’t free from hidden fees. Many of these cards are loaded with fees that can be just as costly as those found on traditional credit cards. Prepaid credit cards are notorious for charging activation fees for setting up the card, which can run anywhere between $5 and $15 dollars. These cards also tend to carry monthly fees that charge you just for having and using the card. Further, some cards require minimum balance requirements, charging you a fee for failure to maintain a minimum balance. Even after all of these fees, many prepaid credit cards will also charge you a fee for getting out cash from the card rather than use it as an electronic purchase.

No Credit Help

The reason that prepaid cards appeal to many consumers is the fact that they can prevent debt and keep you out of default, an attractive offer to a post-bankruptcy consumer. Not only do prepaid cards do nothing to teach you about smart money management, they tend to be a crutch. By loading money onto a card to be used later, you are essentially paying out of your liquid income. You may as well use your checking account to fund these purchases and learn to monitor your spending.  Further, prepaid credit cards do nothing to help your credit after prior trouble with debt. In order to repair your credit you must borrow money and repay it. Prepaid credit cards do not allow you to borrow money to repay, which can do nothing to establish a positive borrowing history.

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