Prepaid Debit Cards...Blessing Or Menace?

Let me be clear right from the get-go that I believe prepaid debit cards, also called stored value cards, are a wonderful invention and their use could save a lot of people from drowning in the U.S. debt pool. According to the U.S. Census Bureau the average American now owes over $9,000 to credit card companies.

Once a consumer gets into credit card debt it is difficult, if not downright impossible, for most people to ever get out of it. Over-limit-fees, late fees, and exorbitantly high interest payments see to that.

This is where prepaid debit cards come into the picture. With a prepaid debit card you "charge" the card - which carries a VISA or MasterCard logo - with a specific amount of cash and then you can shop to your heart's content anywhere that credit cards are accepted - but only until you have used up the money that was originally stored in the card.

This means you can't go into debt. There are no over-limit fees because you can't go over your limit. There are no interest payments because you're not borrowing money when you use a prepaid card. In other words, if you use prepaid debit cards exclusively then you will be forced into...wait for within your means!

It sounds good - and it really is. But there are a few things you need to be aware of. After all, prepaid debit cards are a business and as such they have to make a profit. So where's the catch?

Actually there can be several "catches" and it's up to you to ask the right questions and get all the facts before you purchase a debit card.

Prepaid debit cards can be purchased at most malls, as well as online. Banks and other financial institutions also offer prepaid debit cards that are often backed by a savings account. You are able to use your card up to the amount in your account - or in many cases almost to the amount in your account; we'll get to that in a minute.

When you purchase a prepaid debit card there is a fee. This fee can range from a low of around $2.00 up to $10.00 or even more. This fee must be figured into your cost-of-credit when determining how expensive your debit card really is.

If your debit card is backed by a bank savings account you can really get clobbered by a "monthly account fee." Ask if there is a monthly fee for simply having a prepaid debit card. This fee can be quite high at some banks and greatly offset the savings you might be expecting to realize from not paying interest on your credit card purchases.

Ask about "maintenance fees" for accounts that aren't used for a while. Banks and other financial institutions frequently add in such fees.

If you make a habit of using ATMs to get cash or even to check the balance in your account then you'll definitely want to get a list of any ATM fees associated with your prepaid debit card. Many banks charge outrageous fees to use ATMs.

Some banks charge a yearly fee for their cards. It's good to ask, so you aren't caught off-guard by an unexpected charge against your card.

Ask if there is a "closing" fee for spending all of the money stored in your card. This can be a real killer and cause excruciating embarrassment if you are not aware of it ahead of time. Let's say you still have $50 stored on your card. You go into your local music shop and you pick out $49.00 worth of your favorite CDs. But when you try to pay for them, your card is declined!

Why? Because your card has a "closing fee" that you must pay before you can close out the card. In effect you only thought you had $50 stored on the card. In actuality, with a $5 closing fee you only had $45 on the card. Oops!

Most of the problems discussed so far do not apply to cards that you purchase at a Mall or other non-financial institution and these problems are not associated with all prepaid debit cards obtained through financial institutions - but these are questions you need to ask ahead of time so there are no surprises.

There are a few other things you should know in order to avoid embarrassing situations with your debit card.

Did you know that if you press the "pay at the pump" button when you're buying gas with a credit card that the pump automatically charges your card at least $50, and sometime more? And then, when you finish filling up, the difference between what you actually owe and the initial $50 or more charge that the machine automatically makes may not be returned to your card again for several days.

What this means is if you only have $45 left on your card and you try to "pay at the pump" your card will almost always be declined instantly. The way around this is to "pay inside" - in other words, hand your card to the cashier.

There can be a similar problem at many restaurants, hotels, and car rental companies. Many places check to see that your card has at least 20% more on it than whatever you are trying to buy. There are a number of reasons for this, and whether these reasons are valid or not, if you are too close to the limit of your card when you try to charge a restaurant meal, a rental car or a hotel your card may be declined even though you technically have plenty of money still left on the card to cover the actual transaction.

This is just something for you to be aware of.

Source: Associated Content

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