Uncovering the True Cost of Prepaid Debit Cards by Mary Hunt on Creators.com

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Uncovering the True Cost of Prepaid Debit Cards

Dear Mary: I have opted out of my credit cards, but I may have to travel in an emergency, so I need a card for this purpose. I am looking at Walmart's MoneyCard (http://www.WalmartMoneyCard.com). What's the best secured credit card or money card for this purpose? — Joe, e-mail

Dear Joe: The Walmart MoneyCard you mention, which is a reloadable Visa prepaid card, works like a debit card. However, instead of drawing money from your bank account when you make a purchase or get cash from an ATM, it draws down the money you have loaded onto it. As far as prepaids go, it is probably one of the most reasonable. Even so, you will be charged a gamut of fees — a $3 issuance fee, $3 to reload, $2 for each ATM transaction, $1 for each ATM balance inquiry and a $3 monthly maintenance fee, among others. It all adds up and comes right out of the balance you have remaining on the card.

If you decide to go this way, you will be able to use the MoneyCard to purchase an airline ticket, but you could run into problems trying to rent a car or hotel room with it. That's because both car rental agencies and hotels put holds on funds in excess of the actual charges when you pay with a debit card. That easily could amount to an additional $500 or more. If you do not have enough money on the card to cover the hold, the card may be denied. And if you do have enough, the hold may not be released for days, perhaps even a week, after your stay.

That could really mess up your trip because you would not have access to the money you loaded onto the card.

In my opinion, a credit card is a much better tool for travel. You can make a credit card work just as you would this Walmart MoneyCard. Here's how: When you anticipate traveling, simply make a payment in advance to your credit card account in the amount you will need for the trip. This will create a credit on your account. Then any charges you make for your airline ticket, car rental, hotel and so on will draw down the credit until it reaches $0. There should be no fees and no interest, as you will not be creating any debt. Car rental agencies and hotels will not place holds on those funds because you will not be using a debit card. A credit card does make for a fabulous tool for the financially mature person who knows how to use it and maintain it without ever creating debt or incurring fees.

I suggest that before you make a decision, you read the Walmart MoneyCard Cardholder Agreement, which is on the Web site. It is 13,433 words of fine print. (In comparison, this column is about 500 words.) That fine print deserves your attention.

Do you have a question for Mary? E-mail her at mary@everydaycheapskate.com, or write to Everyday Cheapskate, P.O. Box 2135, Paramount, CA 90723. Mary Hunt is the founder of www.DebtProofLiving.com and author of 18 books, including "Can I Pay My Credit Card Bill With a Credit Card?" To find out more about Mary and read her past columns, please visit the Creators Syndicate Web page at www.creators.com.

Comments

3 Comments | Post Comment

Prepaying your own credit card seems to be a great way to take a trip without having to incur any penalties. I've never had any problem with credit cards and overpayments (paid for an item I subsequently got credit for). Discover card and Visa (check yourself) have insurance covering rental cars and other expenses, so you could save some money there. Debit cards don't offer this benefit. You can ask for a check for any money left over in your credit card account.

Comment: #1
Posted by: BB
Thu Mar 4, 2010 8:00 AM

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Everybody quotes the ATM fee, but many prepaid cardholders understand the fee and avoid using an ATM to check balances on their card account or withdraw cash from an ATM, other than in a pinch. That's because you can check your balance for free by logging into your account online, or with some cards like the MiCash MasterCard you can check your balance by mobile phone text messaging, or have your balance and transaction histories sent to you by text. You can also simply call customer service (for free with MiCash) to check your balance. Just like with checking account debit cards, you can make PIN purchases, say at a grocery story, and add cash back at no charge, to get some spending cash. The cards are most often used as an alternative to credit cards for making "plastic" purchases online or in person, and by their nature as debit cards help you avoid accumulating debt.

Comment: #2
Posted by: David Pratt
Fri Mar 12, 2010 1:31 PM

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Dear Joe: The Walmart MoneyCard you mention, which is a reloadable Visa prepaid card, works like a debit card. However, instead of drawing money from your bank account when you make a purchase or get cash from an ATM, it draws down the money you have loaded onto it. As far as prepaids go, it is probably one of the most reasonable. Even so, you will be charged a gamut of fees — a $3 issuance fee, $3 to reload, $2 for each ATM transaction, $1 for each ATM balance inquiry and a $3 monthly maintenance fee, among others.
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Comment: #3
Posted by: smartbrains
Fri Jul 9, 2010 12:19 AM

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