You thought you could cut your costs and improve your debt situation by getting a prepaid credit card. As the saying goes, buyer beware. I learned some of this the hard way after I received a prepaid credit card as a gift. I tried to buy one of my favorite Beatles CD's at an online auction. I was surprised that my purchase was rejected, even though I knew the balance was enough to pay for it. The real shocker was that when I called the 800 number on the card to double check the balance, they charged me $1.00 for the call!
I opened a new window in my browser and went to the website of the prepaid credit card distributor. Following the prompts to enter my account number, I was shocked to see the reason for my shortage of funds. When my transaction didn't go through on the auction site I had been charged $1.00 by the prepaid gift card company for the failed purchase. And the reason the purchase had failed was because I had used the 800 telephone number to check my balance - and that had cost me $1.00 also. Sadly, my sought after Beatles disc was going to another home. If only had I read the fine print in the three page booklet that came with my card...
Such are the pitfalls of prepaid gift and credit cards and so-called "reloadable" prepaid cards that allow repeated deposits into its account. The popular gift cards have been a big hit with consumers for their convenience. They've also been a big hit for retailers and the credit card industry but for two very different reasons: non-redemption rates and fees. Various research puts the non-redemption rates (the dollar value of cards which is never spent) of prepaid gift and debit cards between 6% and 25%; even the lower figure would have to be called a boon for card distributors when you consider that according to the National Retail Federation (NRF) Gift Card Survey, consumers spent a whopping $24.81 billion dollars on gifts cards in 2006. Many states are enacting laws aimed at recouping this unspent money under the unclaimed property umbrella most state treasuries use today to hold anything of value an owner has not stepped forward to show possession of.
Are any of these cards worth it? First, make sure you read the details on the fees and charges. Gift cards from restaurants, retailers and hotels usually have no intial charge, and often no fees at all. And you can use the balance of a card on a purchase and pay the rest with some other form of payment, so you never have to leave a balance on your card. If you get a prepaid credit card from one of the credit card companies, expect to pay a processing fee right up front.
In addition to upfront fees, look out for the long list of other ways your balance gets whittled down. Things like checking your balance, refused transactions, registering your card for online purchases can all cost you money.
These cards also usually require you to know the exact amount left on the card to use the remaining balance ( nice trick since you may be charged to find out what that amount is!). Fortunately, most retailer-direct prepaid gift cards are free from this pesky habit. The store will swipe your card, deduct the remaining balance and ask you to pay the difference.
One place you may want to check for a good deal on prepaid credit cards is your local bank. They often have some of the best deals and least restrictive rules for prepaid cards that will not limit you to a single retailer. Like all cards, the law requires all prepaid credit and gift card distributors to clearly explain the fees and charges. Just be sure to take the time to compare cards and you could save yourself a lot of money and frustration. I never did get that Beatles CD, but I learned a big lesson and used the remaining balance of my prepaid credit card on a U2 CD instead.
