For many US consumers, using a credit card to shop is a must. Not only is using a credit card convenient, it can also be the perfect tool to buy a necessity when cash is not available on hand. However, credit card spending poses the threat of debt build-up.
Indeed, many consumers today find themselves stuck in bad debt as a result of accumulating credit card charges. Some people even had to file for bankruptcy in an effort to get themselves out of debt. While many experts recommend smart credit card management, some people are looking for other options.
Is there an alternative to credit cards? Yes, there is. Prepaid credit cards or prepaid debit cards are growing in popularity these days. Consumers can now pick between a regular credit card and prepaid credit card and choose the one that fits their needs.
What are prepaid credit cards and how are they different from standard credit cards? First, the process of application is very different since approval for a prepaid credit card is not based on credit history or credit score. This means, anyone – even people with bad credit or no credit history can easily obtain a prepaid card as long as they meet the basic requirements. Some issuers of prepaid credit cards required an active savings account but some do not. Thus, acquiring a prepaid card is typically quick and easy.
However, unlike a regular credit card, a prepaid credit card does not provide credit limit. For some people, this can be a major disadvantage but it can actually work out for your good too. When you have a prepaid card, you must first deposit funds to your account before you can use it for payment. Once the balance runs out, you must make a new deposit or “re-load” your prepaid card before you can use it on new purchases.
The absence of a credit line can be a great help to prevent debt build-up. So if you’re someone having trouble keeping your credit card charges low, a prepaid card can be the perfect partner for you. You don’t need to worry about incurring interest rate charges if you fail to pay off your full balance because purchases are immediately paid using the funds in your account.
What about prepaid credit card fees? If you plan to get a prepaid debit card, be sure to check all the fees. Some prepaid cards are known to carry expensive fees, and despite not paying interest rate, the maintenance costs can prove to be steep.
Furthermore, you should familiarize yourself with the terms of your debit card to avoid penalty charges. For example, you can still be charged with an overdraft fee if you use your debit card for payment but you have an insufficient balance in your account. While the purchase will usually not be counted, the transaction can still go through if the difference between the purchase price and the available balance is small. However, the next time you reload, the overdraft fee will be deducted from your balance. Look for a prepaid debit card with a minimal set of fees and avoid the penalties as best as you can.
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 debit cards and Bad Credit Unsecured Cardscan save you big money!