Credit Cards

Benefits Of A Prepaid Credit Card
Doug Smith

Defined Tag: Prepaid Credit Card.

The term prepaid credit card is a contradiction in terms. "Prepaid" means you pay before receiving the merchandise. "Credit card" is a method of payment in which you pay after receiving the merchandise. So which one is correct? They both are.

A prepaid card is a hybrid between a bank's debit card and a store gift card. Before a prepaid Visa or Master Card can be used, money must be loaded onto it. Without that step, the card is worthless. Cash from a bank account, debit card, or other source is added to the card. Each time the card is used, the purchase amount is deducted from the original balance. When the balance reaches zero, more money must be added to the card. Because of the way prepaid cards work, they can also be called secured cards. The are considered to be "secured" because there is a specific amount of cash on the card before any purchases are made. In other words, the credit card statement for this card is paid before the card is even used. Also, there is little risk to the issuing bank because these cards cannot be overdrawn.

Prepaid bank cards are beneficial for several reasons. First, they look just like major bank cards, and are accepted anywhere other cards are accepted, even online. Second, it is not possible to accumulate a debt balance, so there will be no finance charges. Third, customers without a bank account can enjoy the conveniences of a debit card.

Prepaid cards can also help you learn financial responsibility when using a credit card. Parents can give children and students pre-paid bank cards and tell them the funds must last for a month before the parents will recharge the card. Consumers with bad credit or high debt can use these prepaid financial tools to help limit their spending and repair their credit score. Finally, these items make excellent gifts. Nearly any store sells pre-paid gift cards. Simply select a Visa or MasterCard with the amount you want to give, and buy it at the checkout. After the card is activated at the cash register during the initial purchase, the recipient can begin using it right away.

If you want to load large amounts of money on a prepaid card, find out what the replacement policy is for lost or stolen cards. These are the same as cash, so once it is gone, you might not get the money back, as anyone finding the card can use it. Due to their simplicity, budgetary restraints, and convenience, a prepaid credit card is a good investment.

This article is Copyright 2009 by Doug Smith. All Rights Reserved Worldwide. Unauthorized Duplication Prohibited. For Entertainment Purposes Only. Not Intended As Financial Advice. Consult Your Own Financial Professional.