Prepaid Credit Cards gain popularity but beware of the fees

In 2008 the amount of money put into prepaid credit cards in 2008 jumped from $4 billion in 2007 to $8.7 billion in 2008.

People who cannot get traditional credit cards are more likely to get a prepaid card. These 

are often immigrants who use the payday cash centers. College students use them as an introduction to getting their credit established. The new credit card law that goes into effect in February 2010 will make it very difficult for people under 21 to get a credit card without an adult co-signer.

Some people are simply cutting up their old, high interest credit cards with huge bank overdraft fees. They turn to the prepaid card to help them handle their finances. Parents are giving these cards to students with a couple hundred dollars loaded in. People are forced to use the money on the card rather than continuing to spend more than they can afford to. 

The problem is that these cards carry stiff fees. Simply buying a pre-loaded American Express, Mastercard or Visa credit card costs $4 to $7 in addition to the money loaded. Within 6 to 12 months the cards often begin to charge a monthly fee.  If you don't use the card the monthly charges will eat up its value. 

However, the recent credit card law says that gift cards cannot expire for the first 5 years. Also, fees cannot be charged in the first year.

Gift cards from specific cards usually stay at the level of the deposit, but be sure to check the fine print (terms and conditions) on them too.

Remember, if you are giving a gift card you may be giving a present that depreciates over time.

Tip: go to the customer service counter before you use your prepaid card to make a purchase. If you have a higher priced item in mind, you can buy a store credit card for that amount and you avoid getting shut out at the counter.

You can also use your prepaid card online with many stores.

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