A Guide to Prepaid Credit CardsReviewAdvice

A Guide to Prepaid Credit Cards

If you have bad credit and can't qualify for an unsecured credit line, a prepaid credit card might be your solution. If you're looking to wipe out your debt and stop relying on traditional credit, prepaid credit cards can serve as a practical alternative. If you prefer to avoid traditional banking, prepaid credit cards can save you from having to carry around wads of cash for all of your purchases.

A Guide to Prepaid Credit Cards

Prepaid credit cards allow you to choose the dollar amount you'd like to put on your card. Similar to a debit card, purchases are then deducted from the total balance on the card as you spend. For the most part, however, prepaid credit cards act like regular unsecured credit cards- you can use them to rent a car, make travel reservations, pay bills online, etc. You can even have your paycheck direct deposited onto your card using the account and routing numbers. They also offer many of the same theft and loss protections as traditional credit cards. If you report the loss or theft of the registered card to the issuer, they will likely restore your balance and issue you a new card.

Prepaid credit cards, however, differ from unsecured and secured credit cards in that they do not help you build your credit. The activities on your prepaid credit card are not tracked by the credit bureaus, and therefore, do not contribute to your credit score; though they still serve as a practical alternative for those who cannot qualify for traditional unsecured credit lines.

Using a prepaid credit card is also a useful tool to ensure that you are spending within your means. Since you can only spend as much money as you have available on the card at any given time, it's the ultimate accountability tool for staying on budget and avoiding high interest debt.

To reload your prepaid credit card, you can either transfer funds from your bank account, set up direct deposit from your paycheck onto the card, reload from a PayPal account, or go to a major retailer like Walgreens or Wal-Mart to add additional funds.

To choose a prepaid credit card that best suits your needs, compare features- which vary from ATM access to online bill pay. More importantly, compare fees. While you may be saving yourself from the high interest of traditional credit cards, fees on prepaid credit cards can add up fast. Here are some of the most common fees you can expect to find on prepaid credit cards.

- "Setup fee", paid when you initially purchase the card.

- Reload fee, when you add more cash to the card.

- Monthly maintenance fees.

- Inactivity fees.

- Transaction fees.

- ATM fees.

- Balance check fees.

Fee structures can vary vastly depending on what prepaid credit card you choose. Some cards offer fee free transactions, others will waive fees if you maintain a minimum balance on the card or have direct deposit set up to your account. Read through all the fine print on the back of the card packaging before deciding which prepaid credit card, if any, will work best for you and your financial circumstances.

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