Wednesday, November 17, 2010

Using a Prepaid Debit Card to Manage Your Money

Have you been refused a credit card or bank account due to a poor credit history? If so, a prepaid debit card could be a solution.

A prepaid card looks like a credit or debit card (ie it is plastic and therefore can be sued for online and telephone purchases as well as in shops and at ATMs etc that accept the card brand). But the difference is that you can only spend what it on the card. This amount will be pre-loaded on to it and once that amount is gone, you then have to top it up again before it can be used.

Given that the prepaid card companies do not lend you money (because you can only spend funds that you have loaded yourself), no credit checks are usually necessary. However, most card providers will carry out an online electronic identity verification process.

Some prepaid cards may also offer an e-bank account, which could be a convenient place for you to have your wages and other funds paid in. This package potentially gives you greater control over your money.

So how can a prepaid card help you manage your money? Here are some ideas:

there is no temptation to overspend. In fact, overspending is impossible because when your money runs out, the card will simply not be accepted until you pay some more money on to it;
there are no late charges. Because the money that you spend is loaded onto the card upfront, there are no repayments to forget, so there is no risk of incurring late charges;
there is no interest. With credit cards, as long as you have an outstanding balance, interest will be racking up on that amount. With pre pay cards there are charges for certain services (eg SMS balance alerts), but these are usually not cumulative in the same way that interest charges are;
you can use different cards for a different purposes. Some people may have a prepaid card for food, another for bills and another for treats and so on. That way, they can distribute their money according to their budget on pay day. Once the treat and food funds are used up on their respective cards, that's it until the next payday;
you can manage your account online - many prepaid debit card providers allow you to keep track of your account online. Not only can you accept electronic funds transfers, but you can also see what you have spent and what you have left; and
if you elect to receive notification of every transaction on your prepaid debit card - which is available from prep pay card service providers - you can keep track of what you have spent as you go along.

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