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Pre-Paid debit cards: Harm or Help? |

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Pre-Paid debit cards: Harm or Help?

Pre-Paid Debit Cards: Harm or Help? Jennifer Streaks, Finance Expert

Right now consumers are under siege. From high unemployment to rising food and utility costs, consumers are just barely able to keep their heads above water. Well, here is another issue to add to the list. Pre-paid debit cards are the fastest growing form of electronic payment in the nation. Federal Reserve data shows that prepaid card transactions have grown more than 20 percent between 2006 and 2009. These cards may seem like a great idea to individuals with little or no credit history or those who have difficulty obtaining traditional credit cards. But be wary, these cards come with fees that basically charge you to use your own money.

The Approved Card by Suze Orman is the most recent addition to the line-up of pre-paid debit cards. Suze Orman puts a lot of promises behind this card, the biggest being that it will improve your credit. This is just not the case. Yes, Suze has worked out a deal where TransUnion will be "collecting spending data" on Approved Card users, but this is a process that will take place over at least a 12 to 18 month period and will have no impact on a user's credit rating. With this card, Suze Orman has put her name, credibility and brand on the line. What are you as the consumer risking with this card? Fees- The number of fees number 20 altogether. There are initiation fees, maintenance fees, and paper statement fees along with a whopping $30.00 payment inquiry fee and don't forget the fee of $3.95 every time you want to reload your card with your own cash. Rebuilding your credit- At this time it is not going to happen.

Credit reporting agencies do not track debit card usage as an indicator of credit worthiness. What the Approved Card has brokered with TransUnion is an experiment that allows you to pay to be a guinea pig to see if it is feasible to link debit card transactions to your credit rating. Understand, pre-paid debit card transactions are cash transactions and your credit score is determined by how you pay your bills over time not what groceries you picked up this week. Account Management- You do not need the Approved Card or any pre-paid debit card to get account management services. Any bank or credit union will do the exact same thing and without all of those fees. Yes, you can get these services for free. The main issue with these pre-paid debit cards is that they target a vulnerable financial underclass. This is a growing segment of the population that is typically underbanked or unbanked and may think that a pre-paid debit card (especially one that promises to help improve your credit) may be the way to go.

1.) Know that it is always better to go with a bank or credit-union free checking account instead of a pre-paid debit card.

2.)You can always have free access to your credit report through www.freecreditreport.com

3.) You can receive account management services through your bank or credit union or through free debt/financial counseling organizations and think about it, would you really want to receive financial advice of any kind from a pre-paid debit card service? Be careful with these cards, the money you will end up spending in fees, the credit score improvement that will not happen, and remaining on the periphery of the financial system far outweigh any benefits these cards may seem to offer. Continue the conversation by following me on twitter.com@JStreaks.