Guest Post

Reduce Debt and Save Money with a Prepaid Credit Card

In certain circumstances payments just have to be made with a credit card; nothing else will do. However, there are plenty of reasons why someone might not want to have a credit card: they might not want the temptation to spend money they don’t have for example, or they could find it difficult to keep track of what they’re spending. On the other hand, some people may not even be able to obtain a credit card if they have a particularly bad credit rating.

For people who don’t want or can’t get a credit card there is an alternative – prepaid credit cards. Far from being a poor substitute for a regular credit card, prepaid credit cards can actually help you save money by allowing you to better manage your finances and reduce your debts. Here’s how:

Pay only for what you can afford

Most people will have to borrow money at some point. Most people choose to borrow money to make an important purchase, such as a house or car. There’s nothing wrong with borrowing money per se, but when done frivolously it can lead to financial problems.

This is one of the traps of having a traditional credit card. People end up purchasing items that they don’t need or don’t even really want because they think they’ll pay for it later. Ultimately this attitude can lead to debt building up slowly over time as people begin to spend more than they earn.

With a prepaid credit card there’s no risk of buying something that you potentially won’t be able to afford at the end of the month. This means you can have all the benefits of purchasing items on your credit card, such as added protection, with none of the disadvantages of being in debt.

No interest to pay

With a regular credit card you’ll be sent a bill for which you’ll need to make a minimum payment to cover what you’ve spent at the end of every month. You’re charged interest for everything you don’t pay off – this can soon mount up.

Considering the average APR annual percentage rate) on a credit card is over 17%, making the minimum repayments on a credit card with a couple of hundred pounds of debt on it could take you years. During that time you could also be spending hundreds more pounds on interest.

With a prepaid credit card things are simple – you don’t incur interest because you never get into debt in the first place.

No late payment fees

With a regular credit card, if you don’t make your monthly minimum payments in time your credit card bill will rise thanks to an extra charge for late payments. For people struggling to meet payments because they haven’t been keeping track of their spending, these fees on top of interest can lead to real financial trouble. What’s more, late payments do no favours for your credit rating.

With a prepaid credit card you don’t have to worry about late payments because you’re not spending the bank’s money – you’re spending the money you’ve already loaded onto the card.

Transparent fees

As we’ve just seen, the most expensive parts of having a regular credit card – interest rates and late payment fees – aren’t applicable to prepaid credit cards. The fees that prepaid credit cards do have are fixed and simple to understand; nobody’s trying to pull the wool over your eyes. This really makes managing your money easier than ever because you know what will be charged every month.

Reward schemes

Many prepaid credit cards offer further savings in the form of reward schemes. Most commonly you’ll receive cash back on purchases you make. For example, a MasterCard Prepaid Card from Secure Trust Bank pays back 4% on purchases at over 35 high street retailers such as Argos and B&Q.

These reward schemes can end up covering the charges associated with your prepaid card, giving you even greater control over your finances.

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