Prepaid Credit Cards Explained

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Credit cards offer many benefits. One of the most obvious is that they allow us to enjoy a purchase now and pay for it later, either in full or in payments. In exchange for that, we pay interest on the outstanding balance. But what if we are interested in the other benefits of plastic and don’t want to pay interest?

Sometimes we use credit cards as a matter of convenience. They make it possible to go shopping without a wallet full of cash. They also facilitate buying online or by phone and making reservations. If you want a credit card for reasons such as these, a prepaid card might be a better choice.

Prepaid credit cards are, in essence, debit cards. But instead of being connected to a checking or savings account, they allow cardholders to make deposits directly to the card issuer. They can use the card up to the amount on deposit in the same way they would use a credit card. But instead of running up a balance that must be repaid, they are simply deducting from the amount they have deposited.

These types of cards have several potential uses, including:

* Parents can purchase prepaid cards for their children. For teenagers, it provides a way for them to shop without carrying a lot of cash. For college students, it provides quick access to funds from Mom and Dad. They can simply deposit money onto the card, and the student can access it instantly instead of having to wait for a check in the mail.

* Those with a poor or non-existent credit history can use prepaid cards to shop from home. Whether they want to shop online, pay bills at a company’s website or make travel reservations, a prepaid card can help them do those things without submitting to a credit check. (Keep in mind, however, that some merchants are reluctant to accept prepaid cards. This most often applies to hotels, airlines, rental car providers and subscription services.)

* Prepaid credit cards make ideal gifts for those who do not live close by. Instead of buying a gift card that the recipient may or may not use, you can send a card that may be used anywhere major credit cards are accepted. It’s safer and more convenient than sending cash or a check through the mail.

* They make a good substitute for a debit card if you’re traveling. Whether you prefer not to carry your bank debit card when you’re traveling, don’t have one or want to limit your spending, a prepaid credit card can help. Many such cards also offer zero liability if they are lost or stolen, so you don’t have to worry about your travels being ruined by a thief.

Prepaid credit cards are available from discount stores, drugstores and many other retailers, as well as online and from some financial institutions. They’re easy to set up and reload, and can be used almost anywhere. If you want the convenience of a regular credit card but can’t or prefer not to use one, a prepaid card might be just what you’re looking for.

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