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Credit cards are one of the financial industry's success stories over the last half century, going from strength to strength since the first general purpose card was invented by
Joseph P. Williams of the Bank of America in 1958. Since then, the number of cards issued has risen dramatically, and now most adults carry at least one card, with an increasing
number of people carrying several.
There's no doubt that plastic can be a great convenience, making it easier to shop online, by mail order, and by telephone. They remove the need to carry cash beyond small
change, and despite some scare stories they are actually more secure than cash, and offer more guarantees should you receive faulty goods or bad service paid for with the card.
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However, it's also widely accepted that credit cards have a serious dark side, although you might perhaps not know that by looking at card issuer advertising and marketing
materials. Unfortunately, it's all too easy to rack up debts on your card account with little to show for the money you've spent. The interest rates charged on these debts can
be among the highest in the credit industry, and real problems up to and including bankruptcy can result from irresponsible use of credit cards.
So, accepting that you want the convenience of a card, how can you ensure that you stay out of trouble?
The first major culprit in building up debt is impulse spending. Paying with plastic just doesn't feel the same as spending with cold hard cash, at least until your credit card
statement arrives. Resist the temptation to 'put it on the plastic', and ask yourself if the purchase you're about to make is one you'll regret when the time comes to actually
pay for it.
Also avoid using your card to pay bills and other day to day expenses, unless you plan to repay this borrowing when your statement comes. Credit cards are an expensive way of
papering over the cracks of a badly thought out budget, and if you really need to borrow then explore other, cheaper ways such as bank overdrafts, credit unions or even personal
loans.
Pitfalls of Credit Card
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Imagine my frustration - I had found an old Beatles CD I had been looking for in an online auction site but my prepaid gift card was being refused as payment. I knew I had exactly enough money left on the prepaid debit style card for the LP and shipping because I had just checked my balance - what could be the problem? To be sure, I dialed the 800 number on the back of the prepaid gift card again and punched in the card numbers. The automated voice told me that my prepaid balance was now $2.00 less than it had been just minutes before, and I had not even used the card!
By going to the website of the prepaid credit card, I got a lot more answers. Not only did I see the charge for the "toll free" phone call
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to check my balance, but there was the $1.00 charge for the rejected online purchase. Most other cards just reject a purchase without charges. I know it is my job to know the rules of using the card, but some things you just don't expect.
I know prepaid credit cards are popular. In fact, in 2006 around $24.81 billion was spent on these prepaid credit and gift cards. Well, a little research made it clear to me why retailers and credit card companies like these prepaid credit cards, too. Just like they got me with fees, they get the millions of others in the same way. In addition, somewhere between 6% and 25% of the value of the cards is never redeemed. That means the card companies collect between $1.48 and $6.2 billion! That is because if you have, say $5.00 remaining on your card and you make a $15.00 purchase, with many cards, you cannot pay with the $5.00 on the card and pay the rest with cash. So you have to "reload" the card. Well, when are you going to buy something that costs exactly what is on your card? So some balance remains and never gets spent.
So what do you need to do? Be sure to read the fine print. Fees can vary greatly and in general, prepaid gift cards from retailers, hotels and restaurants are the best value in terms of fees, but then you are restricted to purchases from that particular business. Prepaid credit cards from the card companies are generally different and you can expect to pay a fee right off the top to cover "processing".
Prepaid Credit Cards Not Always a Good Choice
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