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How Prepaid Credit Cards Can Steal Your Money

Imagine my frustration - I had found an old Beatles CD I had been looking for in an online auction site but my prepaid gift card was being refused as payment. I knew I had exactly enough money left on the prepaid debit style card for the LP and shipping because I had just checked my balance - what could be the problem? To be sure, I dialed the 800 number on the back of the prepaid gift card again and punched in the card numbers. The automated voice told me that my prepaid balance was now $2.00 less than it had been just minutes before, and I had not even used the card!

I went to the website of the prepaid credit card and entered my account number. At least I could now clearly see why my balance was so much lower. I was charged $1.00 for the failed online purchase. And there was the extra $1.00 charge for the "toll free" phone call I had just made to check the balance. OK, so I am responsible for knowing the rules, but who would have thought I would be charged for making the call to check my balance?

I know prepaid credit cards are popular. In fact, in 2006 around $24.81 billion was spent on these prepaid credit and gift cards. Well, a little research made it clear to me why retailers and credit card companies like these prepaid credit cards, too. Just like they got me with fees, they get the millions of others in the same way. In addition, somewhere between 6% and 25% of the value of the cards is never redeemed. That means the card companies collect between $1.48 and $6.2 billion! That is because if you have, say $5.00 remaining on your card and you make a $15.00 purchase, with many cards, you cannot pay with the $5.00 on the card and pay the rest with cash. So you have to "reload" the card. Well, when are you going to buy something that costs exactly what is on your card? So some balance remains and never gets spent.

So what do you need to do? Be sure to read the fine print. Fees can vary greatly and in general, prepaid gift cards from retailers, hotels and restaurants are the best value in terms of fees, but then you are restricted to purchases from that particular business. Prepaid credit cards from the card companies are generally different and you can expect to pay a fee right off the top to cover "processing".

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.

If you do have a prepaid credit card that has lots of these fees, what are you going to do? You cannot use the remaining balance on your card if it is less than what you owe. You could pay another fee. But don't call to get your balance either. You could be charged again! Try one of the retailer prepaid cards to avoid these unreasonable fees.

It may not have occurred to you, but the local branch of your home town bank often has the best deals on pre-paid credit/debit cards, so be sure to check there when buying a card if you don't want to be limited to a single store or restaurant. Remember, all prepaid gift and debit card distributors are required by law to make plain what the fees and expenses are for any card they sell. Take the time to research them before your purchase and you can save a bundle. I never did get my Beatles CD, but I did wise up and empty the prepaid debit gift card on a barely used copy of "Joshua Tree" by U2 that I've really come to enjoy.

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Paul McDermott reveals more of his hard earned lessons on prepaid credit card debt relief and finances over at Debt Relief Tips .

This article is available as a unique content article with free reprint rights.

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