Why Get a Prepaid Credit Card?

In the financial world of the 21st century, having at least one credit card in your wallet is as close to essential as anything gets. Sure, you can still pay for purchases in a store with cold, hard cash but try doing that on the internet and you’ll quickly meet a roadblock.

You’re also likely to be in for a rude awakening if you try to book passage on an airline, rent a car or reserve a hotel room without the ubiquitous plastic. Not only do these businesses use credit cards as a guarantee of payment for reservations and to pay for incidental and unexpected charges, but in today’s environment of heightened security concerns, they’re also an indispensible part of identifying legitimate customers.

That said, why would you specifically want to get a prepaid credit card as opposed to all of the others that are on the market? Quite simply, prepaid cards are geared specifically toward people who don’t qualify for other cards either because of poor credit history or no credit history.

A poor credit history results from failure to pay creditors on time or from carrying too much debt. That can be a function of unanticipated hardship such as the loss of a job or unavoidable expenses such as a catastrophic medical event. It can also be due to failing to manage debt conscientiously and simply spending too much money. No credit history is most frequently found in younger people who just haven’t had time to build a credit record. It also happens to people who have chosen to conduct their financial affairs in cash, thus not making a record of their credit worthiness.

There is a misnomer which we should clarify: A prepaid credit card isn’t a credit card. Indeed it’s a special category of debit card. Using a conventional debit card makes a withdrawal directly from your bank account. It’s essentially like writing a check. Prepaid cards, on the other hand, withdraw funds from an account that is specifically set up to be accessed with the card. You don’t even have to have a bank account to get and use a prepaid card. With a prepaid credit card, or debit card, you never incur debt because you’re just accessing money that you’ve placed on deposit with the card issuer.

What to Look for in a Prepaid Credit Card?

Looking for the right prepaid credit card is a little different than shopping for other credit cards. Since debt won’t be incurred with a debit card, there is no interest rate to consider. Prepaid cards don’t offer perks like cash back or other rewards for making purchases either; nor will you find some of the niceties like travel accident insurance that many credit cards provide.

Here are the things that should be considered when deciding on the right prepaid credit card:

Fees & Charges
The sad reality of using a prepaid credit card, or debit card as they’re more accurately called, is that there seems to be a charge for just about everything. There is typically an activation fee and a monthly fee. Many also charge for making purchases and we couldn’t find a single one that didn’t charge for making cash withdrawals. There are also fees for getting a printed monthly statement, for calling customer service, for replacing lost or stolen cards and perhaps most distastefully, inactivity fees which are charged if the card isn’t used for a period of typically 60 or 90 days.

The good news is that most of the highest and most common charges can be waived if you have your paycheck or other recurring income, such as social security or welfare payments, deposited directly to the card account. Our top rated choice, the BankFREEDOM prepaid MasterCard and Visa, waives the activation fee as well as the monthly fee and charges for calling customer service when direct deposit is set up. Others offer similar benefits. The key is to compare the fees that are charged for the various activities and to choose the card that minimizes the expense for your own personal spending habits.

Recharge Account
As we mentioned above, direct deposit is the most advantageous way to make deposits to a prepaid credit card and all of the reviewed cards accept such deposits. But there will be times when it will be necessary to make deposits by other methods as well, so choose a card that best suits your needs. All cards can have money transferred to them from bank accounts, whether your own or someone else’s. Cash deposits can also be made though agents such as Western Union, MoneyGram and Green Dot. These outlets are frequently located at the customer service counter of major retailers like Wal-Mart, K-Mart and Target as well as grocery and pharmacy chains. They’re also frequently available in convenience stores and check cashing businesses. These agencies all charge fees for the service which can range from $3.75 to $4.95 per transaction.

In addition to the methods of charging the card, it’s also important to make sure that the monetary limits of the deposits meet your needs. Some cards will accept a total balance of up to $10,000 while others are as low as $1,000. The number and amount of deposits that can be made also varies from card to card. Our reviews will provide details.

Features
Cards vary widely in the amount of money that they allow to be spent on a daily basis as well as the amount of cash that can be withdrawn. Most limit daily cash withdrawals to about $500 which is common for ATM cards. Some, however, have higher limits. Daily purchases are typically limited from $1,000 to $2,500 but these limits don’t apply to online bill paying.

Most other features are standard across the board such as online account management and email or text message alerts for specified account activities. If you’re likely to have friends or family members that will want to get the card as well, it could be worthwhile to look into a card that has a referral program which pays you for helping sign up new users.

Help & Support
We tend to place a lot of emphasis on high quality customer support regardless of the type of business we’re rating. It’s disappointing that most providers of prepaid credit cards find it necessary to charge customers for what we believe to be a basic feature of doing business. The one exception to this trend among the reviewed card is the RushCard which offers free phone support to all customers. Fortunately, highly ranked BankFREEDOM and AccountNow waive this fee for customers who participate in their direct deposit programs.

A prepaid credit card or debit card can be indispensible for consumers who don’t have access to other types of credit cards. Because charges for these cards vary widely, we encourage you to carefully review our ratings of card features to determine which ones are most likely to meet your personal needs. After narrowing the field, read the reviews of the ones that seem best suited for more details before making your decision. At TopTenREVIEWS We Do the Research So You Don’t Have To.™