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What is a Pre-Paid Credit Card?

written by: Marce•edited by: Donna Cosmato•updated: 6/29/2011

Pre-paid credit cards are not as popular as regular ones because people do not understand how beneficial they can be to managing their finances. Read this article to find out what a pre-paid credit card is and if you should get one!

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    Many Americans struggle with debt and most of this debt comes from credit cards. Since credit is convenient and easily accessible, people learn to depend on it.

    Mastcard and Visa have a pre-paid option and you can apply through some credit card companies. Credit card companies are more likely to give you a pre-paid credit card rather than a regular one because it is not dependent on your credit history.

    Once you receive your card in the mail, you will receive instruction on how to deposit money onto the card for use. Depending on the card company, you can deposit money online or via telephone.

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    Disadvantages to Using a Pre-Paid Credit Card

    Pre-paid credit cards have increased with popularity over the years due to poor credit or the hope to avoid additional debt. Just about anyone can apply and receive a pre-paid credit card but it's not without it's disadvantages.

    Credit card companies have included fees on most pre-paid credit cards for withdrawing, depositing and other types of transactions. Some credit card companies charge you a monthly fee to own the card. These fees are not extraordinary but they can add up quickly.

    Bad credit is one of the main reasons why some people choose to get a pre-paid credit card. It is important to know that pre-paid credit cards will not improve your credit ratings. Since you are not buying on credit and then paying it back, creditors do not view it as responsible money management.

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    Advantages to Pre-Paid Credit Cards

    Pre-paid credit cards are much more secure compared to carrying cash. You won't have to worry if you lost your card or it's been stolen. All you have to do is call the credit card company and report it. Your card will be deactivated and you will receive a replacement as soon as possible.

    Some people use pre-paid credit cards for budgeting purposes. Place spending money on the card and once that's gone, you know you have reached your limit for the month.

    Using a pre-paid credit card for children is another great advantage. You can place their allowance on the card and won't have to worry about them overspending. It also teaches them good money management at an early age.

    Consider your needs and financial situation when deciding whether to use pre-paid credit cards. It's probably not best to use them long term due to its fees but if you need something to help you budget or carry large sums of money to unfamiliar places (such as on vacation), a pre-paid credit card may be the perfect solution for you.