Prepaid credit cards are the rage lately: Hip hop mogul Russel Simmons has his own prepaid credit card; financial guru Suze Orman has hers. It is important for consumers to learn how exactly how these cards work. Using credit card gift cards no fee from a position of ignorance would be a terrible mistake.
Those who don’t take the time to do research on prepaid credit cards can have misguided conceptions about them. A prepaid card requires a secured deposit. When the prepaid card is used, however, this original secured deposit is not charged. Instead the charged amount incurs fees at a high rate and, if the consumer ultimately defaults on payment, he or she loses the secured deposit and any outstanding fees.
Anybody can get a prepaid credit card. So it should not be surprising that the institutions that back them charge higher than normal fees. This does not mean that consumers should get just any prepaid credit card. They should be prudent about making such a choice.
When choosing a prepaid credit card you should first determine whether it is a necessity, if not, it is better to request a credit report and work with any debtors to pay off outstanding debts. After paying off the debts, you will be able to work on getting a credit card with less expensive fees.
If, on the other hand, getting a prepaid credit card is the only choice, one should be prudent and should read the fine print. Prepaid cards may charge fees attached for purchases, online bill payments, card replacement, ATM withdrawal, paper statements, and so on resulting in charges to the consumer that can end up being over $100 a month on the card.
Consumers should not take it for granted that banks and financial institutions will look out for their financial interests. These institutions actually benefit when their consumers default on payments. Thankfully, with the passage of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (or Credit CARD Act of 2009) there is now some legislation that looks out for consumers and protects them from unsavory credit card practices. This is a boon for those looking into acquiring prepaid credit cards.