Credit cards have transformed they way we cover the cost of living, particularly when it comes to bigger expenses we might have struggled to afford in the past.
But the ability to run up big debts is only a good thing if you can afford to pay them off and relying on your plastic can cause problems.
For many of us it can be safer considering a pre-pay card where you can only spend what you’ve got rather than a credit card where you can spend a lot more than you have..
Missing the monthly payment
One of the major problems with credit cards is that we forget to make the monthly repayment which is normally either at least £5 or 2.5% of your balance depending on which is larger.
Others ignore the bill despite the fact that missing a payment will cost you a £12 fine and mean a black mark on your credit record which could damage your ability to take out other financial products including mortgages.
The issue of trust
If you don’t trust yourself to remember to make repayments but want to enjoy the benefits of a credit card then a pre-pay card could be perfect for you.
Unlike a credit card, pre-pay cards don’t come with an authorised spending limit. Instead you have to pay money onto the card in the same way that you would top up a pay-you-go mobile phone. This way there are no monthly payments to meet and you can spend until your credit has run out.
The main advantage of this is that unlike your normal bank card a pre-pay card gives you the same buying power of a real credit card. You’ll be able to use it in millions of ATMs and stores internationally and in those online stores which require a credit card rather than a debit card.
Limiting your losses
In many ways these cards are safer than a standard card because most people normally only add a couple of hundred pounds to them at a time whereas credit cards can have limits running into the thousands which can be abused by fraudsters.
A pre-paid card could be a particularly good idea if you are going abroad to an area where there is a lot of pick pocketing. If you lose it your losses are limited.
But remember that foreign exchange fees will apply to your purchases in the same way they do on the vast majority of credit cards. These fees will tend to add 2.75% to the cost of your purchase but unlike a normal credit card there’s no possibility that you’ll run up interest on your purchase as you’ll have bought it with your money rather than on credit.
Picking a card
Pre-paid cards tend to be fairly similar with only small differences between the fees and charges. Some cards have renewal fees – the 360money Splash Plastic card for example cost £4.95 to renew each year while the Newcastle Building Society card costs £6.99 but the Tuxedo card on the other hand has no fee. Be sure to go online to compare and review the fees that apply on the cards.
The popularity of pre-paid cards has exploded in recent years while everyone from gap year students to debt conscious consumers look to take advantage of their unique benefits so next time you’re planning a holiday or are considering making a big purchase bare the pre-paid card option in mind.