Prepaid Debit Cards Vs. Secured Credit Cards

I have listed these differences below. The truth is there are some distinct differences that may work better for people from different walks of life. Each of these cards will require funds to be deposited in advance before using them, so what?s the difference?

We get quite a bit of email asking about the differences between these two categories of credit cards so I decided to write a short article to explain the basics of each category.

Much like your bank debit cards they deplete funds in your account as you use them, they do not require monthly payments and do not charge interest. Prepaid Debit Cards - Prepaid debit cards are just that, debit cards that have the Mastercard or Visa logo on them and are accepted worldwide.

The major difference is how you qualify for one and how much it cost to use the card. Prepaid debit cards are not concerned with having card holders qualify for their cards. Most issuers do not verify employment, credit, addresses or even legal residency. This makes these types of cards very popular with immigrant workers in the United States illegally.

Debit cards are also more fee intensive than traditional secured credit cards. They have fees that are usually measured by transaction. Other fees include, loading fees, transfer fees, check deposit fees, annual fees and more. This is the price people have pay for convenience and anonymity. These cards will not report cardholder transactions to the credit bureaus, which is not ideal for those who are trying to establish credit.

In our society it is virtually impossible to live without some type of visa or Mastercard, debit cards fill this void. They offer a "de facto" banking system for those unable to qualify normally. They offer direct deposits for paychecks and many other features to a segment of society that traditional banks have left out in the cold. All in all, prepaid debit cards are pretty cool for some people.

Secured Credit Cards ? are credit cards that are specifically designed for people with bad credit. Most people that apply for these types of credit cards do so to build or rebuild their credit. The other advantages are they appear, look and act exactly like a regular credit card. Most prepaid cards are clearly marked as debit cards with outrageous designs and colors.

The price you pay for rebuilding your credit is interest. The worst thing is that you are paying interest on your own money! Unlike prepaid debit cards, secured cards usually carry pretty steep interest rate, usually around 15%. Secured credit cards are not usually ?re-loadable?. Meaning, once you make your initial deposit this becomes your ?credit limit?. Your payments will bring down the balance giving you more purchasing power.

Secured credit cards report to the credit bureaus exactly the same way a regular credit card does. Creditors that review your credit for purchases have no idea if your credit card is secured or not. Another thing to watch is that most people will fund their cards with money that they intend to use immediately. Meaning they send in $500 and expect to be able to go out and spend that $500 immediately on receipt of their card. This is not good borrowing practices and will actually bring down your credit score.

Credit cards are viewed as liabilities on your credit bureau once you borrow over half of your credit limit. The credit bureaus see this as a sign of credit dependency and discount your credit score 35%. When this happens you are hurting your credit, paying regular credit card fees, paying interest on your money and carrying around a maxed out credit card.

Credit bureaus do not show monthly payments; they only show the months you have had the account open and any months that you have been delinquent. This assumption could not be further than the truth. they can pay it back. Most people feel the need to charge something on the card to ?prove?

It will only cost you the price of the annual fee to keep it in their bank. Then leave it alone. Our advice to borrowers is to save up enough money so that your initial deposit is large enough to show a decent credit limit on your credit bureau, around $1000.

Unfortunately most people use them incorrectly and end up hurting their credit more than it was before getting the card. Secured credit cards can significantly help you rebuild your credit and have a positive impact on you overall credit score. When a future creditor sees your $1000 open line of credit, higher credit scores and the financial restraint you have demonstrated you will be much more likely to get the loan.

What is Credit Counseling?

They are not one in the same. For many consumers, simply having a third party to talk to about their financial issues is a great help, but do keep in mind that there is a difference between credit counseling and credit repair programs. Credit counseling can be very helpful for some consumers who find themselves in debt trouble.

In many cases, they offer free educational materials and workshops to help you establish a budget that meets your needs and circumstances. These types of credit counseling agencies will work with you to help you better understand where you are financially and offer some guidance as to what can be done to improve your situation. Many of these offer free or very low-cost credit counseling services.

A good place to start is with local non-profit agencies. If you live in a metropolitan area your chances of finding a reliable and knowledgeable credit counselor are better than if you live in a metropolitan area your chances of finding a reliable and knowledgeable credit counselor are better than if you live in a metropolitan area your chances of finding a reliable and knowledgeable credit counselor are better than if you live in a metropolitan area your chances of finding a reliable and knowledgeable credit counselor are better than if you live in a rural area. Depending on where you live, finding credit counseling is fairly easy.

With this type of counseling, you can begin to take hold of financial situation, learn effective ways to budget your money and reduce spending, and you can also get a clear understanding of how to keep your debt, present and future, within control.

In addition to the above, credit counseling agencies may also be able to help you draft letters to your lenders. Many agencies have pre-drafted letters that they can share with you.

As mentioned above, there are some important and distinct differences between credit counseling and debt repayment plans that are offered by commercial companies. This is especially true in regards to the long-term effects of your credit.

When you take advantage of credit counseling, there is no signed agreement or legal commitment, none of your accounts are affected by the agency itself, and you maintain overall control of how your debts are paid and when they are paid. Credit counseling does not affect your credit rating and does not show up on your credit report. However, because there is no legal or signed commitment, the credit counseling agency leaves the payment of your debts to you, which may leave you exactly where you started if you are not taking some form of constructive action.

With a debt repayment plan, your credit standing may be affected by the plan itself. Some, or all, of your creditors may report that your account is in a debt repayment plan, that some of your payments have been missed, or that there are concessions or other types of financial write-offs that have been made to reduce your current debt to a payable amount. Under the Fair Credit Reporting Act, this information can stay on your credit report for up to seven years.

These might include agreeing to take on no more debt while the plan is in effect. You may be required to accept certain conditions as well. Your deposits are used to pay your creditors according to a payment schedule the counselor develops with you.

In many cases, the debt repayment plans require you to deposit money each month with the credit counseling agency.

For this reason, it is important that you do your research before you sign up with anyone. There are a few companies that charge quite a bit in fees. You will find through your research that some credit counseling agencies charge little or nothing for managing your plan while others will charge a monthly fee.