Saturday, February 2, 2008

How Does A Prepaid Credit Card Work?

A prepaid credit card is just like a traditional or normal credit card in the sense that you can use it the same way, except that it is for people who might not have good credit at the moment and provides another means of having a credit card facility at a lower risk. The lower risk is from the fact that you are unlikely to get more debt from using a prepaid credit card, simply because whatever credit you are using has to come from your own cash. In short, you need to be able to provide cash of your own to build that credit line to be used whenever that prepaid credit card is swiped in a transaction.

Therefore, how a prepaid credit card works is simply that you as the owner of the card, has to dictate how much credit you can use on your card, and therefore how much you can spend. The only money that you will be spending is your own money. If you choose to deposit $1,000 as your line of credit for the card, you cannot spend more than that amount until you have put in more money to your account. And the only way you can fall further into credit card debt using such a card is if you put way too much money into your account, including money that comes from other credit facilities, and you spend all that cash without the ability to pay it back or replace it.

While there are no interest fees charged on using the prepaid credit card itself, which is a great advantage for those who need such card services, there are however, fees to be paid when you choose to deposit or load money into the card account to be used. The fees can be quite high, and it can work as a deterrent for people who are addicted to using cards, even if the money is from their own pockets. The key here is not to rely so much on using cards, and to use cash in most, if not all, transactions as much as you possibly can. In essence, using prepaid credit cards can be as bad as having to pay to use your own money. While the convenience offered in the form of a credit card can be attractive, why should we have to pay others to use our own money in the first place?

Another advantage of a prepaid credit card is the safety aspect of using it. If you ever lose your wallet with money and cash in it, in most cases up to 99 per cent of the time, you will never ever get your wallet or money back. However, with a prepaid credit card, your money is safe in a credit facility even if your wallet is lost or stolen, and if you are worried about someone else using your card, just make a call to the card company to have the card frozen or stopped to prevent fraudalent use of it. In this way, a prepaid credit card is as safe as money in the bank.

Therefore, how a prepaid credit card works is in that you provide your own money to build a credit line to be used whenever you need the facility, but there are fees to be paid to deposit that cash into your credit account. There is no interest rate fees charged for using the money once it is in the account, but there are still costs to providing that money. So consider the advantages and disadvantages of prepaid credit cards and determine if they are necessary in your life before taking the plunge.

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