The Pros and Cons of Prepaid Cards


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It is a popular time of year for prepaid cards. Gift-buyers use them to make purchases and many gift-receivers will discover them among their presents. Whether your payment of choice is a gift card or a prepaid debit card, knowing the pros and cons will help you to avoid unpleasant surprises.

Gift cards can only be used to purchase goods at a particular retailer or mall or for a specific purpose (such as a prepaid phone card). They offer flexibility and convenience. The cardholder can choose when to shop and select which item(s) to purchase. Many gift cards can be used online, and some retailers will refund in cash the remaining balance on a gift card, once a purchase is made.

Gift card users should keep careful track of their cards as refunds are generally not available if the card is lost or stolen. Fees and expiration dates also need consideration. Only a very few states prohibit them altogether. Monthly maintenance fees, processing fees or inactivity fees can lower the value of gift cards. Also, some gift cards carry an expiration date by which any remaining value is lost.

Prepaid debit cards are sold by participating retail locations, banks and credit card companies, and are typically available without a credit check or prior bank account. They can be used wherever that brand of credit card is accepted, permitting you to rent cars, purchase airline tickets, and buy other goods and services without a credit card. In addition to shopping, some cards can be used to withdraw cash from ATMs and to pay bills. They offer convenience and a safe alternative to cash, and can be reloaded with more money. Many people find them helpful for curbing and tracking their spending and like the fact that they are not creating new debt when using a prepaid card.

Most prepaid debit cards are not refundable if lost or stolen, and using one will not help build a credit record. You will pay an upfront fee, in addition to the dollar amount placed on the card. Other fees can include entrance/activation fees, maintenance fees, monthly and annual fees, Point of Sale fees, ATM transaction fees, transaction limit fees, bill payment fees, phone or online transaction fees, money transfer fees and inactivity fees. Finally, you will most likely be charged a reload fee if you add more money to your prepaid debit card.

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