Consumers looking to rein in credit card spending are finding one new, unexpected ally: prepaid credit cards. The use of prepaid credit cards is trending sharply upward, according to the credit and payment research service Mercator Advisory Group. The amount of money loaded on prepaid credit cards is expected to almost double from about $4 billion in 2008 to $7.2 billion in 2009, and double again to $14.1 billion by 2011.
Prepaid credit cards have traditionally been targeted to only people with bad credit, who are unable to get approved for a standard credit card. Because prepaid credit cards are loaded with the cardholder’s own funds and don’t involve a line of credit, they are issued to pretty much anyone regardless of previous credit history. Part of the growth in the use of prepaid credit cards has come about because people with bad credit are finding it increasingly difficult to get approved for traditional credit cards.
However, prepaid credit cards may be finding a new following. As some financially strapped consumers are discovering, like debit cards, prepaid credit cards offer many of the benefits of traditional plastic, with one big difference: there’s an automatic cap on how much you’re able to spend. Leaving credit cards at home and bringing a prepaid credit card instead is one way to avoid impulse purchases and high credit card bills at the end of the month.
With prepaid credit cards, you can’t spend more money than you’ve “prepaid” into the account. In this way, prepaid credit cards are more like a checking account, but with more universal acceptance. Many prepaid credit cards carry the logo of Visa, MasterCard or Discover, and they can be used anywhere regular credit cards are accepted, even if you’re out of state or traveling in a foreign country.
Prepaid credit cards differ from debit cards in one important way: they are not linked to a bank account. This can be a great advantage for people who don’t like to have their charges deplete funds directly from their checking account and who want to minimize the risk of overdraft fees by keeping spending accounts separate.
Prepaid credit cards do have a dark side, however: many come with numerous, and often confusing fees, and the majority charge a monthly fee, typically $6.95 and upwards. Still, as prepaid credit cards are becoming more popular, they are also becoming more competitive. A new breed of prepaid credit cards has given the monthly fee the boot, and the fees charged for other services are substantially lower.
To find the best prepaid credit card online, look for the link to the Terms & Conditions or Card Holder Agreement on the credit card application, and then scroll down until you find the section on Fees and Charges. There’s quite a big difference between the fees charged, so it pays to compare the terms of different prepaid credit cards to find the best deal.