September 16, 2010
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News: Prepaid Cards; Costs Vs Benefits
A recent report indicates that Americans are turning to prepaid credit cards to help reduce spending and pay down card debt. A Javelin Strategy & Research report indicated that prepaid credit cards can actually cost consumers as much as $70 a year. As lenders seek out alternative products from that of the traditional card, prepaid cards have infiltrated the market. Prepaid card don't some with the same protections as the credit card and therefore, lenders have the ability to hide applicable fees within the terms and conditions. These fees have the potential to add up very quickly without cardholder's awareness.
Unlike traditional credit card products, most of these cards boast no penalty fees, no minimum balance, and no credit checks, lenders are quiet in disclosing such fees as a reloadable fee, monthly service fees, transaction fees, and automatic teller machine (ATM) withdrawals. Lenders provide avenues to avoid some of these fees, however, these outlets too have their conditions. For example; your prepaid credit card may wave a reloadable fee if you process at least 30 purchases with your card, but what about the service that may be charged with each purchase? In the end, transaction fees on 30 purchases a month would most likely add to more than a reloadable fee. If the card comes with a monthly service fee of approximately $5.95, you'll pay over $70 after 12 months.
Of course, prepaid cards do have advantages. If you are looking to reduce credit card debt, switching to cash or prepaid cards is a smart idea. Prepaid cards can also help keep you out of trouble with debt. Most lenders include direct deposit or online deposit which can be a real time saver and convenience. Parents love prepaid cards for their student away at school or teen shopping at the mall. Individuals that do not qualify for a traditional card can experience some of the same conveniences and benefits of the traditional card. The decision to use a traditional card or a prepaid card is for each consumer to make. Most importantly, consumers should read all the fine print for all choices in order to make an informed decision.