Before the invention of credit and debit cards, you could see exactly how much cash you were spending. You might have taken out a certain budgeted amount of money to do your Christmas shopping, and better chosen your purchases to be within that limit. Nowadays with large sums of money at your fingertips in plastic form, you probably found it all too easy to overspend during this past holiday season. Credit cards are a dangerous thing, especially for the spontaneous buyer - you are spending money you may not actually have. Then you have to deal with the consequences of paying it all back, racking up interest if you delay, or being hounded by a collection agency if you become too far overdue. Or maybe you screwed up in the past and can’t get a credit card at all due to a bad credit rating.
You are probably already familiar with the idea of a gift-card, which contains a certain amount of money that you can only use in a particular store. But Visa and MasterCard have introduced pre-paid cards (aka “stored-value” cards) that are accepted anywhere a Visa or MasterCard credit card would be – even outside of Canada!
Pre-paid cards are not credit cards because you are using your own money to purchase them, or load them up. You cannot improve your credit rating by using them, but you don’t need to go through a credit check in order to get them.
You can buy them as non-reloadable which are basically disposable, or multi-purpose which you can reload and reuse. Some credit card companies provide travel cards which you can load up with large amounts of money, on the idea of using the card instead of traveler’s cheques. Some businesses are even using payroll cards to replace paper cheques when paying salaries, benefits, or expenses.
There are many more advantages. Pre-paid cards can be handy if you don’t have a bank account, or don’t want to carry cash; but if you need cash, you can withdraw funds from a multi-purpose card at a standard bank machine. You can use them in situations where a credit card is required, such as online/phone purchasing, renting a car, buying a plane ticket, booking a hotel room etc. If you are concerned about the security of your credit card information when making payments over the internet, or accidentally racking up recurring charges that you didn’t agree to, a pre-paid card can be used to compartmentalize just enough funds for what you mean to spend. Visa and MasterCard branded pre-paid cards have zero-liability protection, which means if your card is stolen you are not held responsible for fraudulent purchases in most situations. You can even use them to keep your regular credit card statements clean of any “naughty” purchases that you don’t want others to see.
The downside is that you pay fees instead of interest, so it is important to shop around for the card with features that best fit your needs, incurring the fewest fees. In some cases, pre-paid card fees can be more expensive than regular credit card fees. Read up on the terms and conditions before committing, and be mindful that most cards have limits on how much money you can load them with. Also be aware of expiration dates on non-reloadable cards, as you may not be able to retrieve any remaining funds after the card becomes defunct.
Pre-paid cards can give you all the convenience and flexibility of a credit card with the ability to cap your spending and avoid accumulating debt.
More information is available from the Financial Consumer Agency of Canada (FCAC) at: www.fcac-acfc.gc.ca/eng/publications/Prepaid/PrepaidCards_e.asp
