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Prepaid credit cards explained

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Are you cautious about getting into debt with a credit card? Prepaid cards are growing in popularity, and could be the answer. 

Prepaid cards

We’re all used to prepaid phone cards, prepaid gift tokens and prepaid gas and electricity meters. Prepaid credit cards are conceptually similar, and are a good safeguard against going into the red.

What's a prepaid card?

The prepaid card could be said to be a 'credit card without debt'.

For those who’ve struggled to keep spending on their plastic within reasonable bounds, prepayment could represent a great opportunity to finally knock their domestic budget into shape.

In fact, it’s probably misleading to call it a prepaid credit card, since no credit is involved. And - yes - that means there’s never any interest to pay.

Whenever you use it, you’ll only be spending money that you’ve already loaded onto your prepaid card.

How does it work?

You load money onto the card in much the same way as any other prepaid facility. So that could be cash, bank transfer and so on.

Since your prepaid credit card is also a MasterCard or Visa, you can use it anywhere that MasterCard or Visa is accepted, at home or abroad.

Using it abroad, of course, would give you a very handy and rather more convenient alternative to carrying cash.

It also has the added reassurance that it’s not going to let you overspend on your holiday money. 

And, buy your card in Euros or Dollars, for example, and you can avoid foreign exchange rate fees in countries that accept these currencies.

Red credit card

Reassurance

If the card is lost or stolen, you can simply contact the issuing company, and they’ll send a replacement.

The prepaid card offers the same protection against fraud as regular credit cards.

So if you use it to shop online or over the telephone and the card’s been used fraudulently, you can recover the loss.

There’s no need to check your credit status or history, so prepaid credit cards are issued more or less on demand.

What's the catch?

There isn't really a catch, but here are a few things to look out for when shopping around for a prepaid card:

  • Will you be charged for simply opening a prepaid credit card account?

  • Is there a monthly service charge? And, if so, what exactly do you get for it?

  • Is there a charge each time you want to load credit onto the card?

  • Will the places that accept your cash to top-up the card also charge for that service?

  • Is there a charge for using the card or withdrawing cash on it, including internet purchases?

  • Will you be charged for having the card sent to you by express delivery?

  • Is there a charge for closing your account?

  • Will you be charged for replacing the card, in the event that it’s lost or stolen?

  • Do you have to pay a fee each time the card is renewed (ie upon each expiry date)?

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