You can call this product a prepaid credit card, a prepaid debit card or a secured credit card. The concept is that you pay first. Then pay for transactions from the positive balance on your card. When you use all of the positive balance you are not allowed any more transactions until you deposit more money into this account.
The good side
This tool is for people with no credit history or those with a bad credit history. It allows you to enjoy all the benefits of having a credit card. You get to enjoy the convenience. You can cash in on sales. You can make transactions on line or over the phone. The best part is that you will not have an outstanding balance to pay off at the end of the month. The added bonus is that you will not pay interest on that outstanding balance.
When you Think Your Money, you will see that this looks good on your budget and your balance sheet. Since credit card spending comes out of the free spending part of your budget, your deposit to your Prepaid Debit card will come from that part of your budget. It will not show up next month or any month as a credit card payment. On your balance sheet you will not incur a liability. You will not offset any increase on the asset side of your balance sheet and your net worth should grow.
If you manage this instrument properly over time, you build up your credit score or your credit rating or whatever it is called where you live. You establish a history of responsible money management. It is a very nice tool for Financial Therapy and Healing.
The challenging part
Because you are new to credit or because you have had trouble before, you will be tested. These cards have many rules. If you do not stay strictly within the guidelines you will be punished financially. There is a plethora of costs…I count at least 16. The cheapest is the $.50 ATM balance inquiry. They peak with a card issuance fee that may be approximately $10 but may include some paperwork that can cost up to $50. Some are one time fees and some are monthly and some are service fees. Know what the services are, what they cost and use them only if you need to.
This is good practice for “the” credit cards. They have as many or more fees and expenses. The latest news item is that they will charge you as much as a $40 fee if the monthly interest charge takes you over your credit limit.
Conclusion
Financial Therapy is about learning the discipline to spend less than you make each month. This tool helps you learn that credit card spending needs to stay within that boundary. You should also be able to focus on keeping your monthly account costs down by planning your transactions so that you do not incur unnecessary fees. That way the free spending allocation in your budget is spent on consumer items that will give you pleasure instead of being spend on fees, interest and paying off outstanding balances.
Questions? Credit Expert Contact Ask us - We will reply and if it is a really good one we will publish it and its answer in our weekly blog entry. If a lot of folks have the same question we will build an FAQ url or urls on the site.
