Prepaid Credit Cards Versus Prepaid Debit Cards

Prepaid Credit Cards Versus Prepaid Debit Cards

Credit cards give consumers a line of credit which means they charge a finance charge for any purchases or cash advances that are made with the card and are not paid back within one billing cycle--typically a month. How high these finance charges can go depends on what card program you select. Leaving a balance owed on a credit card is essentially creating debt that does not have to be paid back in fixed installments but rather "revolves" like a revolving door, as payments to the debt are made and new debts are added to the credit card.

In contrast, prepaid debit cards can be used much like a credit card for shopping online or in person, because they are issued by a bank, like a credit card, and carry most often a Visa or MasterCard logo. The difference is that you are withdrawing your own funds from your account as you make purchases. You are essentially prepaying with money up front. Because the money is already sitting in your debit account, you are not borrowing money or potentially racking up any finance charges. You also have the option of selecting whether you want to make a purchase as a signature transaction or as a PIN debit transaction, which allows you to get cash back at the point-of-sale or at an ATM. Additionally, if you try to make a purchase that is more than your available balance on your account, the transaction should be rejected, so you cannot be overdrawn or be hit with overdraft fees. (But be sure to choose a prepaid card program that does not allow you to create a negative balance, because not all prepaid card programs are alike).

Unlike one-time-use prepaid gift cards, reloadable prepaid cards with the Visa or MasterCard logo are designed for repeated use, allowing you to replenish the balance on the card. They are a good choice for people who cannot get a checking account and thus a checking account debit card. They are also a good choice for people with bad credit or who have trouble establishing credit or even a checking account. "Secured credit cards" are another form of credit and are also not prepaid debit cards. They require you to deposit your own money up front order to borrow money against the deposited funds (with potential interest), which remain unavailable to you until you pay off any credit balance and close out the card account. This means you are not really accessing your own money, rather you are borrowing against it.

Today, financial consumers have more tools at their disposal for how to manage their money, so when doing research, it is helpful to use the right terminology. It is also important to read up on the features, benefits, limitations, and fees associated with any financial product. Search on the correct term, and you should find sites that compare these tools according to different categories. Also, be sure to do your own research.

RESOURCE BOX

MiCash is a trusted resource for information about prepaid debit cards and personal finance. They offer a prepaid MasterCard with low fees and 24/7 customer service See the website of MiCash at http://www.micash.net or call 1-866-642-2741.

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