Most people could not live with their credit cards today, using that little piece of plastic for everything from buying groceries to traveling abroad.
However, those with less than stellar credit histories may be hard-pressed to find a company that will offer them a revolving line of credit without any collateral attached.
This is where prepaid credit cards come into play.
What is a Prepaid Credit Card? Prepaid credit cards are attached to a checking or savings account.
When the card is used to make a purchase, the money comes directly out of the account.
The card allows you to continue to charge as long, as there is money in the account.
When the balance is gone, the card can no longer be used until cash is deposited into the account once again.
Because the card holder is not charging up debt when using the card, there is no interest payment or risk of taking on more debt than you can handle.
Benefits Prepaid credit cards may be a good choice for someone who is unable to get approved for a standard credit account.
Some companies, such as hotels and rental car agencies, require a credit card number to make a reservation.
You can use a prepaid card for these purposes without running up debt or paying interest charges on the amount.
The card is much easier to get than other types of credit, and you don't have to worry about the risk of taking on more debt than you can handle and putting yourself in a difficult financial position.
Drawbacks While prepaid credit cards can be a good option for some, there are some drawbacks to using these for difficult financial situations.
First, the funds must be in your checking or savings account in order for you to be able to use the card.
This is little help is you are in a tight spot and need a little extra help to make ends meet until the next paycheck.
The other problem is that some companies may not accept prepaid cards for payment of monthly expenses because they worry that the money may not be in the account when it comes time to pay the bill.
Alternatives There are additional options to these credits cards when you are in a financial pinch.
An emergency line of credit deposits money directly into your checking account so you can write checks or pay bills without worrying about overdraft or late fees while you wait for the next paycheck to come.
These accounts are only used when you need them, and the balances can be paid back in full at any time or in minimum monthly payments for a small finance charge.
The advantage to an emergency line of credit over prepaid cards is that the money you need goes directly into your account.
The person or company you write a check to never needs to know that the money came from an emergency fund.
This is an excellent choice for covering payments when money is tight.