Prepaid Debit Cards Have Hidden Fees
Monday, January 23rd, 2012
Alex Rodriguez, Russell Simmons, Kimora Lee Simmons, Baby Phat, and now Suze Orman are branding prepaid debit cards. But, do you need them, and should you use them?
A prepaid debit card allows you to activate plastic that can be used for services, in retail stores and online. The catch is that you have to pay to activate your own money because there are fees associated with activation, some deposits and usage of the card. John Ulzheimer of www.SmartCredit.com, calls prepaid debit cards a “glorified gift card.”
Another drawback is that your prepaid debit card is backed by your own money, so it is not building you any credit history. Only cards that extend credit to you will report your use of credit to a credit bureau.
Suze Orman touts that you may opt in with her new prepaid debit card to allow TransUnion to mine your usage information for their use now, and hopefully your benefits later. However, the real credit score with value is the FICO score issued by Fair Isaac Company.
So, what are your options for a similar product with lower expenses? Check out www.SmarterChoice.org to find a credit union in your area. Go by and see if you would qualify to join, open an account, and received a debit card without all the fees.
If you find yourself, or someone you’re trying to assist, without a bank account, check out www.JoinBankOn.org. There you will find help and resources in your community to help establish bank accounts. To qualify for better terms in the long run, it’s worth the responsible actions required and effort to get into the banking system.
One of my former students simply buys a monthly gift card at Walmart to keep her within her budget. When it’s gone, she can’t spend anymore in Walmart for that month. She saved fees and spends within her means. Others simple use cash.
You may feel like carrying plastic in your wallet with images and signature of your favorite celebrity will make you appear smart and savvy. However, the savviest thing you can do is to avoid fees that only set you back more. Instead, build slowly to manage a bank account, and then a credit card responsibly. Pay off your card monthly, and build credit history that rewards you with low rates and fees.