Now that the holiday day season nears, many consumers are gearing up for spending. While many people own a credit card or a number of credit cards, some might prefer to use a prepaid card instead. Is a prepaid credit card or debit card best for holiday spending? First, let’s consider the advantages and disadvantages prepaid credit cards offer.
Prepaid Credit Card Advantages
If you want the conveniences of a credit card but can’t get approved for one because of a poor credit score or bad credit, you can choose a prepaid debit card instead. Approval for prepaid cards is not based on credit history or score and unlike a secured credit card, there is no need to provide a security deposit.
A prepaid debit card can be an ideal partner for holiday spending because it helps you keep spending in control. Since you are not allowed to charge purchases to credit, you can only spend the amount you have deposited in your debit account. Once the balance runs out, you will need to make a new deposit or reload your card to continue using it.
Using a prepaid credit card encourages people to pay more attention to the things they buy and the price of each purchase. With a credit card, repayment comes later so it is easier to overlook. Maxing out or even exceeding credit limit is a common issuer for credit cardholders. But if you are spending with a prepaid debit card, the risk of debt build-up can be minimized.
Prepaid Credit Card Disadvantages
There are pre-paid debit cards that are known to carry very expensive fees. Although you don’t have to worry about interest rates, the maintenance costs can prove to be a burden. For instance, per transaction charges can eat up your available balance more quickly. Aside from the set-up fee, you might also need to pay monthly fees to keep your account active. Not using your prepaid debit card within a specified period may also cost you inactivity fees.
And while prepaid debit cards normally do not allow charges to credit, you can still be charged with an overdraft fee. How? If the available balance in your prepaid account is not enough o pay the full price of your purchase, the transaction may still successfully go through. However, the difference plus the overdraft fee will be automatically deducted from your funds the next time you reload your card.
Another prepaid card fee that you should be aware of is the foreign currency charge. Yes, foreign currency charges can both apply to prepaid credit cards and regular credit cards. Therefore, if you plan to use your prepaid card overseas, you should first check this particular cost to avoid unpleasant surprises.
Does this mean all prepaid debit cards carry expensive fees? Not at all! You can still find prepaid credit cards with reasonable and minimal set of fees. So if you are considering to use a prepaid card this holiday season, shop around, compare, and read the fine print.
About the Author:
Tara Tiemann is the credit specialist for http://www.go-prepaid.com. Which is a resource site for people who want to live debt free! If you are on a budget, using a prepaid credit card and prepaid debit card can save you big money!