Sunday, February 3, 2008

Disadvantages Of Using A Prepaid Credit Card

There are many advantages to using a prepaid credit card if you were someone in debt or are not eligible for a standard credit card for one reason or another. However, have you ever considered that if you were in such a position in the first place, should you even be considering using a prepaid credit card? While there might be a lot of benefits and positives to having one, there are just as many disadvantages or negatives that should put you off from acquiring and using such a credit facility.

First of all, if you are already in debt, or worse still in credit card debt due to overspending and overuse, then being in continued possession of a credit card, prepaid or otherwise, definitely spells disaster. The existence of such a facility in your wallet means that you will be tempted and inclined to continue spending, regardless of whether the money is yours in the first place. A credit card offers a convenient way of spending on both big and small ticket items, without the feeling of guilt or accountability, simply because the lack of visibility of handling cash will make you value your money less. Therefore, if you have a habit of spending, using a prepaid credit card will not allow you to curb such behavior nor will it help you to manage this problem.

Secondly, using a prepaid credit card has a lot of hidden costs associated with it. While you do not need to pay interest on the money or credit used, because you own the money in the first place, you will still be charged for using the card because the banks or credit card companies will charge you for using their services of providing the facility. Further to that, you will also need to pay a fee whenever you choose to deposit money into the account. This amounts to paying someone to be able to use your own cash. While the prepaid credit card advocates will explain it as being completely normal and justified for paying for someone else’s services, why would you want to spend more to do so when you could simply use your own money and paying via cold hard cash? Of course, carrying cash around can sometimes be risky and dangerous, but you should only do so when required, and at all other times, only have as much money in your wallet as you really need. Which is not a lot for most people.

There have been some arguments about using prepaid credit cards as a means of improving your credit score. The best and truest way of improving your credit ratings is to simply control your spending and watch your finances. Adding a credit facility like this will not improve anything except to deepen your bank’s pockets as your money flows to them continuously.

The above are just some of the disadvantages of using a prepaid credit card, but are also the strongest reasons why you should not use such a credit facility. While there would always be benefits to using them, they can only mean one thing for people who are engaged in debt, and that is to possibly continue sinking them further in owing more and more money to banks and other financial bodies. Remember that to rid yourself of debt, the best way is to save and then invest your money, not to spend it. A prepaid credit card only allows you to spend, and not to save.

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