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Prepaid card? That’ll do nicely

Borrowing | Credit Card

By Justin Modray, published 03 December 2009.
Helpful? 0

Prepaid ‘credit’ cards have been in the news this week as Ryanair announced that using one of these will soon be the only way to avoid their extortionate £5 per flight payment card ‘handling’ fee when buying a ticket.

I’m not a fan of Ryanair. A quick surf on the web suggests they have very little respect for either their customers or employees. And, if I want to fly somewhere in Europe I’ll gladly pay a few extra quid to a ‘frills’ airline so that I don’t have to worry about a multitude of possible extra charges or being left stranded at a remote airfield should Ryanair decide to cancel a flight (perhaps when it’s not profitable for them to fly me home).

But I do have to applaud Ryanair for inadvertently increasing the awareness, and perhaps use, of prepaid ‘credit’ cards. These cards have their faults (usually charges), but they can be a useful way of encouraging individuals to avoid building up debt.

Unlike credit cards, prepaid cards only let you spend what you have.  In a society that has massively over-extended itself on easy credit this is no bad thing.

Average credit card debt in the UK is around £1,900 per account. At 18% APR it would take someone over 16 years to clear this debt if they just repay the bare minimum each month (typically 3% of the outstanding balance with a £5 minimum). There’s little doubt that credit cards are fast becoming a modern day ‘ball and chain’ for far too many people.

I’d like to see everyone having to use a prepaid card for at least a year before being allowed to apply for a credit card. Respect for credit should increase, in turn reducing the number of people who incur expensive, financially crippling debts.

I doubt the credit card companies would play ball, but unless harsh measures like this are put in place I’m struggling to see how future generations will wise up and live within their means.

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Readers' Comments (4) - To post a comment please register or login .

Comment by jimboyuk at 11:20am on 14 Dec 2009:

Hi Justin,

Where does one get prepaid credit cards. Are they available from general retailers. Also you mentioned charges for prepaid cards. How are these levied - is there a charge when you top up or spend money on these cards?

Comment by justin at 7:05pm on 14 Dec 2009:

Hi jimboyuk,

I'll try and add a prepaid cards section to the credit cards page over the next day or two, but meanwhile:

The easiest way to buy one is online. A quick google search brings up a number of options. As you suspect, charges are usually levied on top ups and transactions, although some also charge when you apply or don't use the card for a certain period.

Travelex and Extreme appear to have fairly competitive offering while the O2 Cash Manager Money Card is very appealing as there's no charges (unless you use the card abroad), although it's only available to O2 customers.

Beware that any money loaded on a card is not covered by the Financial Services Compensation Scheme if the provider goes bankrupt and purchases are not protected as they would be with a credit card.

It's also worth checking cashback sites like Quidco and Topcashback to see whether you get back some commission that would otherwise be paid to a comparison site etc.

Comment by justin at 10:52pm on 14 Dec 2009:

Prepaid card section now added to the credit card page.

Comment by jimboyuk at 11:43pm on 14 Dec 2009:

Many thanks.