Prepaid Credit Cards Not Always a Good Choice

Imagine my frustration - I had found an old Beatles CD I had been looking for in an online auction site but my prepaid gift card was being refused as payment. I knew I had exactly enough money left on the prepaid debit style card for the LP and shipping because I had just checked my balance - what could be the problem? To be sure, I dialed the 800 number on the back of the prepaid gift card again and punched in the card numbers. The automated voice told me that my prepaid balance was now $2.00 less than it had been just minutes before, and I had not even used the card!

By going to the website of the prepaid credit card, I got a lot more answers. Not only did I see the charge for the "toll free" phone call to check my balance, but there was the $1.00 charge for the rejected online purchase. Most other cards just reject a purchase without charges. I know it is my job to know the rules of using the card, but some things you just don't expect.

I know prepaid credit cards are popular. In fact, in 2006 around $24.81 billion was spent on these prepaid credit and gift cards. Well, a little research made it clear to me why retailers and credit card companies like these prepaid credit cards, too. Just like they got me with fees, they get the millions of others in the same way. In addition, somewhere between 6% and 25% of the value of the cards is never redeemed. That means the card companies collect between $1.48 and $6.2 billion! That is because if you have, say $5.00 remaining on your card and you make a $15.00 purchase, with many cards, you cannot pay with the $5.00 on the card and pay the rest with cash. So you have to "reload" the card. Well, when are you going to buy something that costs exactly what is on your card? So some balance remains and never gets spent.

So what do you need to do? Be sure to read the fine print. Fees can vary greatly and in general, prepaid gift cards from retailers, hotels and restaurants are the best value in terms of fees, but then you are restricted to purchases from that particular business. Prepaid credit cards from the card companies are generally different and you can expect to pay a fee right off the top to cover "processing".

Fees can then be charged for simply using the card to buy something, to check your balance, for refused transactions (like me), for registering the card with a name and address so it can be used online, expensive monthly and/or annual maintenance fees, the list goes on.

If you do have a prepaid credit card that has lots of these fees, what are you going to do? You cannot use the remaining balance on your card if it is less than what you owe. You could pay another fee. But don't call to get your balance either. You could be charged again! Try one of the retailer prepaid cards to avoid these unreasonable fees.

Don't rule out your local bank as a place for good deals on prepaid credit cards. They often have fewer fees and are less restrictive. And don't forget that all distributors of prepaid gift and credit cards are required by law to explain what fees and charges you are subject to. Do yourself a big favor and check these out and you could save yourself a lot of money and disappointment. I did not get that Beatles CD, but I used the lesson I learned and emptied the balance of my card on a copy of a U2 CD that I have really come to like a lot.

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Paul McDermott reveals more of his hard earned lessons on prepaid prepaid visa credit card and finances over at Get Out of Debt Tips .
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