Beware of Prepaid Credit Cards
Written by Paul McDermott Saturday, 10 November 2007 14:29
Imagine my frustration - I had found an old Beatles CD I had been looking for in an online auction site but my prepaid gift card was being refused as payment. I knew I had exactly enough money left on the prepaid debit style card for the LP and shipping because I had just checked my balance - what could be the problem? To be sure, I dialed the 800 number on the back of the prepaid gift card again and punched in the card numbers. The automated voice told me that my prepaid balance was now $2.00 less than it had been just minutes before, and I had not even used the card!
I went to the website of the prepaid credit card and entered my account number. At least I could now clearly see why my balance was so much lower. I was charged $1.00 for the failed online purchase. And there was the extra $1.00 charge for the "toll free" phone call I had just made to check the balance. OK, so I am responsible for knowing the rules, but who would have thought I would be charged for making the call to check my balance?
I know prepaid credit cards are popular. In fact, in 2006 around $24.81 billion was spent on these prepaid credit and gift cards. Well, a little research made it clear to me why retailers and credit card companies like these prepaid credit cards, too. Just like they got me with fees, they get the millions of others in the same way. In addition, somewhere between 6% and 25% of the value of the cards is never redeemed. That means the card companies collect between $1.48 and $6.2 billion! That is because if you have, say $5.00 remaining on your card and you make a $15.00 purchase, with many cards, you cannot pay with the $5.00 on the card and pay the rest with cash. So you have to "reload" the card. Well, when are you going to buy something that costs exactly what is on your card? So some balance remains and never gets spent.
Are any of these cards worth it? First, make sure you read the details on the fees and charges. Gift cards from restaurants, retailers and hotels usually have no intial charge, and often no fees at all. And you can use the balance of a card on a purchase and pay the rest with some other form of payment, so you never have to leave a balance on your card. If you get a prepaid credit card from one of the credit card companies, expect to pay a processing fee right up front.
In addition to upfront fees, look out for the long list of other ways your balance gets whittled down. Things like checking your balance, refused transactions, registering your card for online purchases can all cost you money.
These cards also usually require you to know the exact amount left on the card to use the remaining balance ( nice trick since you may be charged to find out what that amount is!). Fortunately, most retailer-direct prepaid gift cards are free from this pesky habit. The store will swipe your card, deduct the remaining balance and ask you to pay the difference.
It may not have occurred to you, but the local branch of your home town bank often has the best deals on pre-paid credit/debit cards, so be sure to check there when buying a card if you don't want to be limited to a single store or restaurant. Remember, all prepaid gift and debit card distributors are required by law to make plain what the fees and expenses are for any card they sell. Take the time to research them before your purchase and you can save a bundle. I never did get my Beatles CD, but I did wise up and empty the prepaid debit gift card on a barely used copy of "Joshua Tree" by U2 that I've really come to enjoy.
Article Source : http://articleadvocate.com
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