Prepaid Credit Cards Not Always a Good Choice

By: Paul McDermott

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!

I opened a new window in my browser and went to the website of the prepaid credit card distributor. Following the prompts to enter my account number, I was shocked to see the reason for my shortage of funds. When my transaction didn't go through on the auction site I had been charged $1.00 by the prepaid gift card company for the failed purchase. And the reason the purchase had failed was because I had used the 800 telephone number to check my balance - and that had cost me $1.00 also. Sadly, my sought after Beatles disc was going to another home. If only had I read the fine print in the three page booklet that came with my card...

Such are the pitfalls of prepaid gift and credit cards and so-called "reloadable" prepaid cards that allow repeated deposits into its account. The popular gift cards have been a big hit with consumers for their convenience. They've also been a big hit for retailers and the credit card industry but for two very different reasons: non-redemption rates and fees. Various research puts the non-redemption rates (the dollar value of cards which is never spent) of prepaid gift and debit cards between 6% and 25%; even the lower figure would have to be called a boon for card distributors when you consider that according to the National Retail Federation (NRF) Gift Card Survey, consumers spent a whopping $24.81 billion dollars on gifts cards in 2006. Many states are enacting laws aimed at recouping this unspent money under the unclaimed property umbrella most state treasuries use today to hold anything of value an owner has not stepped forward to show possession of.

Are any of these cards worth it? First, make sure you read the details on the fees and charges. Gift cards from restaurants, retailers and hotels usually have no intial charge, and often no fees at all. And you can use the balance of a card on a purchase and pay the rest with some other form of payment, so you never have to leave a balance on your card. If you get a prepaid credit card from one of the credit card companies, expect to pay a processing fee right up front.

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.

It may not have occurred to you, but the local branch of your home town bank often has the best deals on pre-paid credit/debit cards, so be sure to check there when buying a card if you don't want to be limited to a single store or restaurant. Remember, all prepaid gift and debit card distributors are required by law to make plain what the fees and expenses are for any card they sell. Take the time to research them before your purchase and you can save a bundle. I never did get my Beatles CD, but I did wise up and empty the prepaid debit gift card on a barely used copy of "Joshua Tree" by U2 that I've really come to enjoy.

Article Source: http://www.superfeature.com

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