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.

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.