Why Pay A Monthly Fee for a Credit Card?

/ BY / Credit Cards

Prepaid credit cards -- also known as prepaid debit cards -- are becoming more popular with consumers in the U.S. But unlike many credit cards, which have no annual fees, these prepaid cards will cost you. A recent article in Time magazine noted that fees for prepaid cards can run anywhere from $10 to $27 a month, which adds up to hefty chunk of money each year.

So why do people continue to use prepaid debit cards? There are several reasons.

  1. Prepaid cards are a good option for people who don't have good credit and can't get a regular credit card. There are times-with online purchases, for example-when it's much easier to make payments using a credit card. Prepaid cards function like credit cards and are usually accepted wherever credit cards are accepted.
  2. Prepaid credit or debit cards are popular with people who don't have a bank account. For those who don't trust banks or who are turned off by the high fees that banks can charge for everything from checking accounts to ATM withdrawals, prepaid cards may appear to be a less costly alternative even with all the charges that they carry. It's also easier to buy a prepaid card than it is to open a bank account, since the cards are readily available online, at banks and at many retail locations.

    In addition, some prepaid cards will waive their monthly fees if you directly deposit your paycheck to your card, or if you load a certain amount of money on the card each month.

  3. There's a limit on how much you can spend with a prepaid card. You can't go over your credit limit with a prepaid card; you can only spend what's on there. If you're a person who has trouble controlling impulse spending, a prepaid card can help you stay within your budget and keep you from getting further and further into debt. (Something that’s all too easy to do with a regular credit card.)
  4. Prepaid cards are convenient. You just put them in your wallet and pull them out when you need to make a purchase. You don't have to show a license or remember a PIN number to use them.
  5. Your bank account isn't at risk if your prepaid card is lost or stolen. A prepaid card doesn't draw from your bank account like a debit card, so if it falls into the wrong hands thieves don't have access to the funds in your bank account.
  6. Some prepaid cards may offer purchase protections offered by traditional credit cards. Visa prepaid cards, for example, provide you with Purchase Security that protects many transactions for 90 days after you make them. People who register their MasterCard prepaid cards, on the other hand, may not be liable for unauthorized purchases made if their card is lost or stolen.

If you're in the market for a prepaid card, be sure that you read the agreements carefully so that you fully understand the fees that you'll pay each month and fees for any other services. For example, many prepaid cards charge you for withdrawing money from an ATM, for checking your account balance or even for calling customer service. These costs can all add up to make a prepaid card a less attractive option than it originally appeared.

Finally, it's important to understand that a prepaid card will not help you build (or rebuild) your credit, since transactions made with these cards are not reported to any credit bureaus. If you are looking for a way to boost your credit score, you're probably better off getting a credit card that's linked to a bank account. You can find some choices on CreditCardXPO’s Credit Cards for People with Limited / No Credit section.

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Please note your financial situation is unique and our tips & advice presented here may not be appropriate for your situation. CreditCardXpo.com recommends that you seek different advice & opinions from your own accountant or financial adviser who understands your individual circumstances before making any important decisions or implementing any financial strategy.