'Expensive' pre-paid cards 'might not be worth it'

18/02/2009

Pre-paid cards might not represent a good debt-busting option for consumers, an expert suggested today.

David Kuo, head of personal finance at Fool.co.uk, said that the cards tend to "benefit the banks" rather than cardholders.

Pre-paid cards work through the holder "loading it up" with credit prior to use.

Its primary advantage for debtors is that, unlike credit cards, it is not possible to spend more than what has already been pre-paid on to the card.

However, Mr Kuo said that extra charges are levied by card providers for payments and other services.

"The pre-paid credit cards are not cheap to start off with, there is a cost associated with it to put money on to it and it is really the bank's way of getting around the problem of extending credit to people," he commented.

"It is really there to benefit the banks, because it means that the only amount of money that you can spend on the credit card is what you put on yourself in the first place… [they are] just giving you a debit card facility."

Offering an alternative view, EuroDebt director Kevin Still commented: “We feel that there is a major role for properly priced pre-paid cards, often linked to a basic bank account, for people in financial difficulty where taking out more credit is not sensible or perhaps not even viable.

"Our view is that all UK consumers should be able to benefit from low cost purchasing through media like the Internet and depriving people of this option because they don’t have a mechanism of payment that is accepted over the Internet or over the telephone is not in anybody's interests."

He added: "Sweeping your disposable income onto a pre-paid card can have a number of budgeting benefits. EuroDebt has used pre-paid cards as a loyalty device and are able to load cash and refunds onto a client’s card for a variety of reasons.”

According to December spending statistics from payments association Apacs, UK consumer spending on plastic cards hit £32.3 billion over the month.

This is 0.3 per cent up from December 2007 and a 4.4 per cent increase over December 2006.

Tags; Debt Management and Banking, Credit Card Lifestyle,

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