{ 4 comments }

Olivia Kirk

I dislike credit very much, it always has a way to get you back. I like the prepaid because it’s so simple, put money on, take money out, and not many fee’s. The debit card is okay, I had it, but it was just easier to only use the prepaid.

ken

Hi Ron, great article! I suppose a lot of people can now have a clear understanding what these cards mean. In the Philippines (where I am from), it is very difficult to get a credit card. You need to have at least a thousand dollars or so in the bank, or a steady income stream. Debits cards on the on the other hand are easy to obtain. Thanks for the advises, I thoroughly enjoyed reading your articles.

bix

I’m confused by your description of prepaid cards… if, as you say, the “deposit” amount isn’t drawn down, then this seems more like a charge card (if balance must be paid in full) or a credit card (if only a minimum balance due is required to be paid) with credit limit = your deposited amount . I thought giftcard-like products or products like Serve by American Express represent the prepaid category… whereby you have paid in a certain amount, which represents your spendable limit (i.e., you have “prepaid” it). In the case of giftcards, once spent the account is effectively closed… or on a reloadable (like Serve) the account stays active and may be replenished?

Ron

With a pre-paid card, your deposit simply acts as collateral. Think of it like pawning a diamond ring … the ring is kept by the pawn shop, but you’re given money to use for a period of time. But whereas with a pawn shop, you only make one payment at the end of the agreed upon term, with a prepaid card, your credit is revolving. A pawn shop may agree to “revolve” your credit as well, but typically they want their cash back. You may be able to “up your limit” by depositing more collateral with a prepaid card.

The reason a prepaid card isn’t a charge card is because with a charge card, the only collateral is your good name and credit score. Charge cards are paid in full at the end of each month (like with American Express), but a prepaid card can be paid in installments over time, just like a regular credit card.

The difference between a prepaid card and a regular credit card is that a prepaid card wants collateral and a regular credit card doesn’t.

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