Credit Card Relief

Millions of Americans are using prepaid debit and credit cards to avoid adding debt. But hidden fees could be costing you a lot more than you know. Types of fees vary from one card to the next and what you pay for depends in on how you use the card. The quickest way to start saving money is by knowing when you’re getting charged.

From 2008 to 2009, the use of prepaid cards shot up 61 percent. Analysts predict shoppers will load nearly $120 billion onto the cards in 2012. Credit Card giant, MasterCard, predicts that will jump to more than $840 billion by 2017.

Demand for prepaid cards is up, so more companies are offering them… along with new fees. That means you’ve got to understand the how much you’ll be charged to use a prepaid card. Here are four simple ways to save more of your money when using a prepaid card.

1. Skip the activation fee. Some cards charge you $20 or more just to get one, but there are several  free prepaid credit cards out there. There’s really no reason to pay for a prepaid card.

2. Avoid ATM fees. Nearly all prepaid credit cards charge you to get cash from an ATM. But you don’t have to pay more to get your money. Ask for cash back next time you’re at the store and you use your card for a debit purchase. Get the cash and skip the ATM fee.

3. Pick credit over debit. There will be times when you should use the credit option when you swipe your card. Picking credit means you’ll sign the receipt: a debit transaction means using a PIN (personal identification number). The price at the register is the same either way, but picking credit could save you extra money in the long run. Here’s how:

Anytime you buy something with a prepaid card, the retailer pays an “interchange fee.” The store pays more when you pick credit, so they’ll generally ask you to pay with debit. But that could put some of the burden back on you. Some card companies don’t like missing out on that extra charge. Many try to make up the difference by charging you, the card holder, an extra fee every time you use your PIN. To avoid that hidden charge, remember to pick credit next time you’re at the cashier. Let the retailer cover the cost.

4. Use direct deposit. Another easy way to eliminate fees is by using direct         deposit. Nearly all prepaid cards offer free direct deposit of paychecks and government benefit checks. Several cards even offer cash bonuses when you sign up for direct deposit. Loading your card at consistent times every month will slash monthly maintenance fees by making it easy to keep minimum balances and requirements.

Using a prepaid card can be a good way to keep spending and debt under control, but it’s important to find a card that’s right for you. Understand the fees and when you’re being charged.

It’s also important to realize that these cards aren’t really credit. Banks that issue the cards are charging you for the privilege of spending your own money. Despite the claims from some card companies, using prepaid cards won’t help you rebuild a bad credit score. We break down that myth in our next post.

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