Credit cards offer many benefits. One of the most obvious is that they allow us to enjoy a purchase now and pay for it later, either in full or in payments. In exchange for that, we pay interest on the outstanding balance. But what if we are interested in the other benefits of plastic and don’t want to pay interest?
Sometimes we use credit cards as a matter of convenience. They make it possible to go shopping without a wallet full of cash. They also facilitate buying online or by phone and making reservations. If you want a credit card for reasons such as these, a prepaid card might be a better choice.
Prepaid credit cards are, in essence, debit cards. But instead of being connected to a checking or savings account, they allow cardholders to make deposits directly to the card issuer. They can use the card up to the amount on deposit in the same way they would use a credit card. But instead of running up a balance that must be repaid, they are simply deducting from the amount they have deposited.
These types of cards have several potential uses, including:
* Parents can purchase prepaid cards for their children. For teenagers, it provides a way for them to shop without carrying a lot of cash. For college students, it provides quick access to funds from Mom and Dad. They can simply deposit money onto the card, and the student can access it instantly instead of having to wait for a check in the mail.
* Those with a poor or non-existent credit history can use prepaid cards to shop from home. Whether they want to shop online, pay bills at a company’s website or make travel reservations, a prepaid card can help them do those things without submitting to a credit check. (Keep in mind, however, that some merchants are reluctant to accept prepaid cards. This most often applies to hotels, airlines, rental car providers and subscription services.)
* Prepaid credit cards make ideal gifts for those who do not live close by. Instead of buying a gift card that the recipient may or may not use, you can send a card that may be used anywhere major credit cards are accepted. It’s safer and more convenient than sending cash or a check through the mail.
* They make a good substitute for a debit card if you’re traveling. Whether you prefer not to carry your bank debit card when you’re traveling, don’t have one or want to limit your spending, a prepaid credit card can help. Many such cards also offer zero liability if they are lost or stolen, so you don’t have to worry about your travels being ruined by a thief.
Prepaid credit cards are available from discount stores, drugstores and many other retailers, as well as online and from some financial institutions. They’re easy to set up and reload, and can be used almost anywhere. If you want the convenience of a regular credit card but can’t or prefer not to use one, a prepaid card might be just what you’re looking for.
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Credit can be a wonderful thing. But when it gets out of hand, it can wreak havoc on our finances. This is especially true when it comes to credit cards. Charging up a large balance is bad enough, and by the time you add in fees and high interest rates, the debt can be overwhelming.
In a perfect world, everyone would use credit wisely and pay off balances within a month or two. But in reality, cardholders often build up a mountain of debt and fail to realize it until it’s unmanageable. That’s when it’s time to put the plastic away and work on paying off the balance. Here are some tips to help you do that.
1. Rework your budget, eliminating unnecessary items. Even little things like that cup of coffee you buy on the way to work every morning can add up. Once you’ve decided what you can do without, add up how much you’ll save and add it to your monthly payment.
2. Volunteer for overtime, or get a second job. Put all the extra money you make toward your balance.
3. Reduce your overall interest rate. If you have a low interest card that allows balance transfers, transfer the balance of a higher interest card to it. Even if you can only transfer part of the balance, you will save some money and be able to pay everything off more quickly.
4. Put lump sums of money that you receive toward your credit cards. These may include tax refunds, bonuses or settlement proceeds. This can save you a lot of money in interest.
5. Put your raises toward paying down your debt. A raise is money that you were living without before, so you should be able to continue to live without it until you’ve paid off your credit cards.
6. Sell stuff. Get rid of that extra vehicle, or have a garage sale. We all have things sitting around that we could do without, and those things can make us money. Use the extra cash to help pay off your credit card debt.
7. Snowball your debt. This simply means paying the minimum payment on all but one card, and paying as much as possible toward that one until it’s paid off. Then you move on to another card, paying the minimum payment plus what you were paying toward the previous one. Repeat until all balances are paid in full.
8. Get help from friends and family. A loan from someone who is close to you can help you get out of debt, and repayment terms are usually much more favorable. But it’s still important to have a repayment agreement and follow it carefully.
9. Negotiate with your creditors. If you’re having a hard time paying off your balance, they might be willing to lower your interest rate. You may be required to stop using your card while the lower rate is in effect, but a moratorium on charging until your finances are in better shape is a good idea anyway.
10. Talk to a credit counselor. If you are several thousand dollars in debt and can’t afford your payments, credit counseling could save you from bankruptcy. A credit counselor will negotiate with creditors on your behalf, and can usually get you lower interest rates and reduced payments. Once it’s all set up, you make one monthly payment to the credit counseling agency, and they forward the appropriate amount to each creditor.
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When it comes to savings, money market accounts are among the most popular. They offer better returns than most standard savings accounts, yet still allow easy access to your money when you need it. These accounts are often confused with money market funds, but the two are actually very different.
Whereas a money market account is guaranteed not to lose value, there is no such guarantee with a money market fund. That’s because instead of a bank-backed savings account, a money market fund is an investment vehicle. Some banks offer money market funds as well as money market accounts, adding to the confusion.
One of the most attractive aspects of money market funds is that they carry much less risk than most investments. They are required by law to be comprised of numerous low-risk securities. These securities may include government bonds, CDs, and commercial paper from corporations, among others.
The idea behind a money market fund is to keep the value of each share at exactly $1. The yield, however, may rise and fall, and this determines how much the investor stands to gain. In some rare cases, however, money market funds have dropped below $1 per share, subjecting shareholders to losses.
As a general rule, money market funds are very safe. Since their inception in 1971, only three funds have lost money. But in an uncertain economy, anything is possible. So just like any other investment, it is prudent to choose money market funds wisely.
Types of Money Market Funds
Money market funds may be taxable or tax-free. Taxable funds require that investors pay income tax on any earnings made. Tax-free money market funds are not subject to federal taxes, and in some cases are also exempt from federal and local taxes.
General purpose funds are those that invest in a wide variety of securities. All investments made are highly rated, but at least part of them are non-government investments. These funds tend to have higher yields, but they are subject to a greater amount of risk.
Government funds invest only in securities from the federal government. This provides a lower level of risk, but yields are usually lower as well. Some government money market funds invest only in U.S. Treasury bonds. Others add investments in Ginnie Mae and Freddie Mac bonds to the mix.
If you’re looking for a risk-free way to earn a return on your money, a savings account or CD is probably your best bet. But if you can tolerate a small amount of risk, a money market fund has the potential to increase your earnings. While you probably won’t get rich with it, you can get a better rate than most bank accounts can offer.
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