Benefits and drawbacks of a prepaid credit card

Cynthia Stewart
Jul 5, 2007
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For credit card holders prepaid cards or prepaid credit cards as they are known popularly, bring welcome relief from many absurd fees and finance charges. Prepaid credit card bring heaps of benefits and few drawbacks. Besides, bringing immediate relief from exorbitant credit card fees, they also promote financial discipline. Since, you can only use what you have with prepaid credit cards, there is little chance of going overboard and impulsive buying. This article takes a look at some great and some not so great things about prepaid credit cards.

  • Prepaid credit card are very easy to get, often they come with guaranteed approval, no employment verification, no credit checks and very little documentation hassles.
  • With many retail stores offering prepaid credit cards, they are never too far away. In addition to these the prepaid credit cards can be purchased online.
  • An excellent thing with prepaid credit card is the financial discipline it brings and the freedom one gets from paying late fee, over the limit fees, and finance charges at the end of every month. In fact there are no bills to be paid at all.
  • With the sound backing of Visa and MasterCard prepaid cards have a wide acceptability. In some cases they are even more acceptable than credit cards. Because of the fact that in case of a dispute, the credit card company stands with the credit card holder, some merchants are reluctant to accept some credit cards, but even they gladly accept the prepaid credit cards.

Coming on to the bad things about prepaid credit cards

  • Prepaid credit cards have a costly setup fees associated with them. This fees can make your purse lighter by any amount ranging between $5 to $90.
  • Prepaid credit cards provide free loading options at only some preferred locations, and if you want to load them at other retail outlets there is a loading fee. So you have to pay to get money into your prepaid card.
  • Prepaid credit cards don't come into your pocket unless you have paid in cash for them. This is a very sticky situation for those with bad credit ratings, cash strapped and on a tight budget.
  • Some prepaid cards charge you when you withdraw your cash using the ATM's . This gives a very uncomfortable feeling since you deposited the money into the prepaid cards, and when you want to withdraw some you have to shell out some fee, every time.
    Prepaid credit cards are not a good and valid option for recurring payments such as magazine subscriptions etc.

Prepaid credit cards though have few drawbacks, but even these are nothing as compared to the drawbacks of credit cards. The very fact that you never get into debt, never incur late fees, never have constant threat of bankruptcy nagging you and there is nothing to repay anything to anyone at the end of the month makes them a worthy choice.