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I thought they would save me money and interest charges. That prepaid credit card that was given to me as a gift seemed like a great idea. But when I tried to pay for an old Beatles CD at an online auction, my troubles began. My payment was declined, even though I knew I had enough money on the card. So I called an 800 number on the card to check my balance. Big mistake. That call cost me $1.00 that was taken off my card! I went to the website of the prepaid credit card and entered my account number. At least I could now clearly see why my balance was so much lower. I was charged $1.00 for the failed online purchase. And there was the extra $1.00 charge for the "toll free" phone call I had just made to check the balance. OK, so I am responsible for knowing the rules, but who would have thought I would be charged for making the call to check my balance? Such are the pitfalls of prepaid gift and credit cards and so-called "reloadable" prepaid cards that allow repeated deposits into its account. The popular gift cards have been a big hit with consumers for their convenience. They've also been a big hit for retailers and the credit card industry but for two very different reasons: non-redemption rates and fees. Various research puts the non-redemption rates (the dollar value of cards which is never spent) of prepaid gift and debit cards between 6% and 25%; even the lower figure would have to be called a boon for card distributors when you consider that according to the National Retail Federation (NRF) Gift Card Survey, consumers spent a whopping $24.81 billion dollars on gifts cards in 2006. Many states are enacting laws aimed at recouping this unspent money under the unclaimed property umbrella most state treasuries use today to hold anything of value an owner has not stepped forward to show possession of. As for fees? They also vary widely so check the fine print first. Generally speaking, gift cards purchased directly from retailers, hotel chains, restaurants, etc., have no initial cost to purchase and much lower - if any - fees. Prepaid credit/debit cards are another story entirely. Virtually all prepaid debit card distributors immediately deduct a certain percentage of the purchase price as a fee for the initial processing of the card. Then watch out for a long list of other charges. Some charge for simply using the card, checking your balance and for even registering a card so you can use it for online purchases. Then there are monthly maintenance fees that could be tacked on. I am all for a business covering its costs, but this sounds excessive to me. And as we found out, you need to know the exact amount left on your card. If you try to use your card and don't have enough left on it, you cannot use cash or another card to pay the remaining balance. And guess what? You'll be charged a fee! But don't call to check your balance, either, or you may pay another fee like I did. Again most retailer prepaid cards don't have all these fees and charges. One place you may want to check for a good deal on prepaid credit cards is your local bank. They often have some of the best deals and least restrictive rules for prepaid cards that will not limit you to a single retailer. Like all cards, the law requires all prepaid credit and gift card distributors to clearly explain the fees and charges. Just be sure to take the time to compare cards and you could save yourself a lot of money and frustration. I never did get that Beatles CD, but I learned a big lesson and used the remaining balance of my prepaid credit card on a U2 CD instead.
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Paul McDermott reveals more of his hard earned lessons on credit card debt relief and finances over at Get Out of Debt Tips . Get your own completely unique content version of this article.
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