Prepaid Debit Cards...Blessing Or Menace?

Let me be clear right from the get-go that I believe prepaid debit cards, also called stored value cards, are a wonderful invention and their use could save a lot of people from drowning in the U.S. debt pool. According to the U.S. Census Bureau the average American now owes over $9,000 to credit card companies.

Once a consumer gets into credit card debt it is difficult, if not downright impossible, for most people to ever get out of it. Over-limit-fees, late fees, and exorbitantly high interest payments see to that.

This is where prepaid debit cards come into the picture. With a prepaid debit card you "charge" the card - which carries a VISA or MasterCard logo - with a specific amount of cash and then you can shop to your heart's content anywhere that credit cards are accepted - but only until you have used up the money that was originally stored in the card.

This means you can't go into debt. There are no over-limit fees because you can't go over your limit. There are no interest payments because you're not borrowing money when you use a prepaid card. In other words, if you use prepaid debit cards exclusively then you will be forced into...wait for within your means!

It sounds good - and it really is. But there are a few things you need to be aware of. After all, prepaid debit cards are a business and as such they have to make a profit. So where's the catch?

Actually there can be several "catches" and it's up to you to ask the right questions and get all the facts before you purchase a debit card.

Prepaid debit cards can be purchased at most malls, as well as online. Banks and other financial institutions also offer prepaid debit cards that are often backed by a savings account. You are able to use your card up to the amount in your account - or in many cases almost to the amount in your account; we'll get to that in a minute.

When you purchase a prepaid debit card there is a fee. This fee can range from a low of around $2.00 up to $10.00 or even more. This fee must be figured into your cost-of-credit when determining how expensive your debit card really is.

If your debit card is backed by a bank savings account you can really get clobbered by a "monthly account fee." Ask if there is a monthly fee for simply having a prepaid debit card. This fee can be quite high at some banks and greatly offset the savings you might be expecting to realize from not paying interest on your credit card purchases.

Ask about "maintenance fees" for accounts that aren't used for a while. Banks and other financial institutions frequently add in such fees.

If you make a habit of using ATMs to get cash or even to check the balance in your account then you'll definitely want to get a list of any ATM fees associated with your prepaid debit card. Many banks charge outrageous fees to use ATMs.

Some banks charge a yearly fee for their cards. It's good to ask, so you aren't caught off-guard by an unexpected charge against your card.

Ask if there is a "closing" fee for spending all of the money stored in your card. This can be a real killer and cause excruciating embarrassment if you are not aware of it ahead of time. Let's say you still have $50 stored on your card. You go into your local music shop and you pick out $49.00 worth of your favorite CDs. But when you try to pay for them, your card is declined!

Why? Because your card has a "closing fee" that you must pay before you can close out the card. In effect you only thought you had $50 stored on the card. In actuality, with a $5 closing fee you only had $45 on the card. Oops!

Most of the problems discussed so far do not apply to cards that you purchase at a Mall or other non-financial institution and these problems are not associated with all prepaid debit cards obtained through financial institutions - but these are questions you need to ask ahead of time so there are no surprises.

There are a few other things you should know in order to avoid embarrassing situations with your debit card.

Did you know that if you press the "pay at the pump" button when you're buying gas with a credit card that the pump automatically charges your card at least $50, and sometime more? And then, when you finish filling up, the difference between what you actually owe and the initial $50 or more charge that the machine automatically makes may not be returned to your card again for several days.

What this means is if you only have $45 left on your card and you try to "pay at the pump" your card will almost always be declined instantly. The way around this is to "pay inside" - in other words, hand your card to the cashier.

There can be a similar problem at many restaurants, hotels, and car rental companies. Many places check to see that your card has at least 20% more on it than whatever you are trying to buy. There are a number of reasons for this, and whether these reasons are valid or not, if you are too close to the limit of your card when you try to charge a restaurant meal, a rental car or a hotel your card may be declined even though you technically have plenty of money still left on the card to cover the actual transaction.

This is just something for you to be aware of.

Source: Associated Content

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The Benefits of Using a Prepaid Debit Card

Prepaid debit cards are great for people with lower incomes, don't have a bank account, or want to send money to a loved one.

First you need to know what a prepaid debit card is before you can know what the benefits of having one are. A prepaid debit card is a reloadable card that you can add money to in a variety of ways.

You can use it in addition to or to replace an ATM/debit card. Some people referred to as the 'unbanked' (no bank account) usually have lower incomes or be getting paid 'under the table'. They may not make enough money to consider opening a bank account or may not be able to produce the necessary documentation to get an account. Sometimes, these individuals (especially immigrants) are targeted by criminals because they tend to carry large amounts of cash on them. You also don't need to have a credit check or ChexSystems check to secure a card. A prepaid debit card allows these people to be able to have more versatility with their spending that they wouldn't normally be able to do unless they had a bank account. Simple things like shopping online, paying bills online or over the phone, reserving a hotel, renting a car, etc. are made easier and safer when you can use plastic to pay.

If you do have a bank account, you may like to have a prepaid debit card as an alternative if you have a habit of having your account overdrawn whether it was an oversight on your part or an erroneous charge of a merchant. Prepaid debit cards may have a small fee of $1.50 or sometimes no fee for an overdraft. Also, as opposed to a bank, a prepaid card will decline some charges if there aren't enough available funds. Many times banks will pay even though you have no funds in your account and slap you with high overdraft fees for each charge that comes through. So if you have one bounced check and you had four other point of sale purchases from your debit card at the same time of the bounced check, you'll get hit with NSF charges for the check and the four purchases. One small oversight can cost you big time eating up funds you may need to pay your rent or the like. When you're living paycheck to paycheck, many times it isn't worth the high probability of incurring exorbitant overdraft charges.

This type of card is beneficial too if you're on a limited budget and need to do a better job of managing your spending. Most of the time, when you are using a credit or debit card, we are easily tempted to overspend which can lead us into debt problems or being in a bind until next payday. The amount of personal debt many people are carrying is staggering. Only a few savvy consumers seem to be able to avoid this trap of the masses. When you give yourself a certain amount to spend on a prepaid debit card, you only have a certain amount of funds you allot yourself and when that is gone, that's it. It's like using cash to pay for your needs, but safer than carrying cash.

Another good reason for prepaid debit cards is if you have teenagers, a college student, or other financially dependent loved one and need to get money to them quickly, inexpensively, and easily. This can teach them good financial management practices to benefit them when they are on their own. It's a better option than having them constantly asking for your card.

One downside to these cards is that some tend to have high fees depending on your transaction habits. I've researched several different cards and have found one to have reasonable fees and excellent features perfect for my spending habits. This card is called Ready Debit. You can easily load cash onto this card from Paypal, direct deposit, Green Dot MoneyPak store locations, or a checking or savings account. You can pay for purchases anywhere Visa is accepted as well as withdraw cash from any ATM with a Visa, Interlink, or NYCE logo. You can also sign for point of sale purchases and your transaction is guaranteed to be covered by Visa's Zero Liability policy.

It's important to know that you do have options when it comes to how you manage your money. I think prepaid debit cards can become more popular as people become more aware of the benefits.

Source: CredoDebit

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