October 22nd, 2009
A Credit Healthy Holiday Season With Pre-Paid Cards
Pre-Paid debit cards are the “Other Plastic”, an alternative to credit cards that won’t rack up interest charges, increase your debt, or give you that queasy feeling of buyer’s regret the next day. If you are unable to pay off your balance and with credit card interest rates sky-rocketing to nearly 30%, you’ll want to curb your credit use this holiday season. Think of pre-paid cards as plastic cash, which will prevent you from spending beyond your means and make you think twice when you splurge because splurging will deplete your money immediately, rather than be just a line item on a receipt to be paid off later.
Pre-paid credit cards are especially useful for people with poor credit or no credit history who can’t get approved for a typical credit card. It’s a credit-healthy way to spend responsibly while building positive credit history and a better credit score. It’s simple: you pre-load the card with money, spend as you wish, and you have no bills to pay at the end of the month. You still get the perks of the convenience of a credit card, while avoiding unnecessary fees and finance charges. Best of all, you can still build a positive credit history (but always check with your issuer if they report to the credit bureaus). Your pre-paid card will be your training wheels to help you get the hang of credit without the risk of incurring debt or defaulting on payments. This is also a smart option for younger consumers affected by the upcoming CARD act provisions .
The pre-paid trend isn’t just limited to credit cards; these other pre-paid products can help you monitor your spending and still get what you want:
- Pre-paid cell phones have been around for awhile, and are still the no-hassle alternative to a contract phone. You pay for the minutes you want and load up more when needed; the only catch is that you might run out of minutes sooner than you think. You don’t even have to worry about a credit check, which some carriers do when you sign up for phone. One of Credit Karma’s favorite deals is the T-Mobile’s FlexPay for BlackBerrry Curve 8900.
- Gift cards are the “more personal than cash, less hassle than a present” staple at birthdays. You might have thought these were on the wane, but PlasticJungle.com has revived the gift card marketplace by allowing consumers to trade, sell, buy unused gift cards so you can buy stuff at places where you actually shop. It’s a better answer to retail therapy that won’t max out your credit or damage your score.
- Pre-pay your college tuition? Believe it. Some programs, most notably the Florida Prepaid College Plan in Florida and the Independent 529 Plan for 270 private universities nationwide, are urging parents to consider prepaid college tuition plans to secure their children’s future at a more affordable rate today. How much you can save depends on how soon you start saving, and with the inflating cost of higher education, locking in your costs at today’s tuition prices will save you potentially thousands. Keep in mind that these prepaid plans does not account for books, food, transportation, and lab fees that can add up to nearly half the cost of the entire college price tag.
Bottom-line?
Pre-paid is a good way to go if you are prone to overspending or need to get you back on track to good credit . With credit still tight in the marketplace but consumers showing a growing appetite for spending, I wouldn’t be surprised to see a lot more gift cards being swiped at the register or showing up under the Christmas tree this year.
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