About Pre-Paid Credit Cards

Pre-paid credit cards are gaining popularity as a way to stay on a budget or to avoid carrying large amounts of cash. If you're considering a pre-paid Visa or Mastercard, it's important to know how they work and to be aware of their limitations as well as their benefits. This information will help you decide whether a pre-paid credit card is right for you, and help you choose the right one.

Description

A pre-paid credit card is a Visa or Mastercard card with a stored value. It is similar to a debit card, but it is not linked to a bank account. Money has to be added to the pre-paid credit card account when its original value is depleted. There is typically a cost to activate the pre-paid card and a monthly fee to keep the account active.

Function

A pre-paid credit card works just like any other credit card for making purchases. However, there must be enough money in the pre-paid credit card account to cover the purchase or it will be declined.

Benefits

Many people use pre-paid credit cards as a budgeting tool. By loading a certain amount of money onto the credit card, they cannot spend more than the designated amount. A pre-paid card can be given to children in college or other circumstances where they need access to a credit card but also need to stay on a budget. Pre-paid credit cards are also useful for people who do not qualify for a regular credit card and who don't want to carry cash, and for travelers who don't want to take the risk of having a regular credit card with a high limit stolen.

Use

In order to use a pre-paid credit card, you can open an account online or purchase a card from many major stores such as Wal-Mart or Walgreens. When setting up the card, you can add money in any amount you choose, subject to the rules of your particular card issuer. You can add money as needed via the phone, Internet or refill packs sold in many stores. You can also arrange for an automatic payroll deduction.

Types

There are many types of pre-paid credit cards that go under different brand names, such as Green Dot and Baby Phat. Some stores, such as Wal-Mart, also have their own pre-paid credit cards. The main difference between them is the fees and terms.

Considerations

When choosing a pre-paid credit card, there are several things to consider. These include the set-up cost, monthly fees and ease of reloading the card with additional money.

Warning

Because there is a limited amount of money on a pre-paid credit card, you may not be able to use it for purchases that pre-authorize a higher amount, even if the final sales amount would be covered by the available funds. For example, a gas station pump might automatically pre-authorize $50 even though you only plan to buy $20 worth of gas and have $30 on your card. The purchase would be declined due to the station's policy. The same thing can happen at restaurants and rental car companies.

Resources

• List of Pre-Paid Credit Cards