Many of us use our credit cards to make purchases on items that we either want or need before we consult with our monthly budgets. It's easy to buy something on credit without considering the payment that we're going to need to make on the account the following month and several months to come. If this is something that you have a habit of doing, there is a solution that might be a good option for you. It's called preloading credit card payments. While there are pros and cons to the practice, it can be a good solution. Here is everything you need to know about this solution to managing your finances.
What is a preloaded credit card payment?
Preloading credit card payments is a way to start your own savings account for an item that you want to buy. Instead of purchasing the item on credit and taking it home with you, the money is put on the preloaded card in the amount of a payment that is affordable. The money stays on the preloaded card until you have enough to buy the item outright. What this does for you, is that it helps you to keep your monthly credit card bills within reason and it saves you money on the interest charges that come along with credit purchases. The money you spend stays on the preloaded credit card until you're ready to use it.
What are the benefits of preloaded credit card payments?
According to Fool Proof Me, there are two huge benefits associated with preloading credit card payments. The first we just discussed. It saves you the cost of the credit to purchase the interest charges. The second is perhaps even more important than the first. By preloading credit card payments, you're keeping your monthly budget at the same level without adding any extra obligations that might be hard to cover. It also serves as a test run. When you designate a payment to your preloaded account in the amount that the item would have cost in monthly payments, it shows you if you really can afford to make that kind of payment. It also teaches you discipline because you're delaying the gratification of having the site in your possession while making regular monthly payments as though you did make the purchase. It's an eye-opening exercise that shows you what your budget can truly handle. If you get in a tight spot and you can't afford to make the designated monthly preloaded credit card payment, you don't have to. But it will show you what would have happened if you made an impulsive purchase on credit.
Other benefits of delayed purchases
Aside from helping you to develop discipline in your spending habits, there are other benefits of using the preloaded credit card payment system. If you plan to purchase an item that would take you several months to pay off, it gives you time to think about if you really want or need the item. Sometimes we buy on impulse only to realize a short time later that the things we purchase are not as useful or desirable as we once thought. It also gives you more time to research the ratings on the item, to compare a variety of vendors to get the best price, and to have a cooling-off period to see if your emotions about having the item cool in a couple of months.
How do prepaid debit cards work anyway?
According to Investopedia, prepaid debit and credit cards operate similar to a gift card. You use cash to preload a specific amount of money on them and the pre-loaded balance remains available for your use on the card whenever you want to use it. These cards can be used anywhere credit and debit cards are accepted. They are a good alternative to cash and the balance on the card is paid in advance. These are good options for anyone who does not or cannot have a bank account. Most prepaid credit and debit cards come with associated fees for their use. It's important to shop around and compare several of them so you can get the best possible deal. Preloading credit card payments can work much like a savings account at a bank, but you must remember to deduct the amount of monthly fees that are subtracted from the account if any.
Best prepaid debit and credit cards
Card Rates offers a few tips about finding the best deals on prepaid credit and debit cards. Before you choose a certain card it's wise to consider your lifestyle and the features that will work the best for your situation. Some cards come with no monthly fees. Card Rates recommends the NetSpend Visa Prepaid Card to avoid monthly fees. The PayPal Prepaid Mastercard is the most highly-recommended with no pin transaction fees. The NetSpend Visa Prepaid Card is also best with no signature transaction fees and no reload fees. The American Express Serve card is the best with no ATM fees and the Bluebird by American Express has no foreign transaction fees. These are just a few of the available cards, but they are the top picks for saving you money.
Should you preload credit card payments? The answer depends on your lifestyle and personal preferences. It's a practice that allows you to develop discipline in saving money and avoiding impulse buying. It can help you to keep your monthly payments lower to give you a little more room in your budget for unexpected expenses. While the downside to doing this is that you won't get an item as soon as you want to own it, the perks of learning more about your spending habits and managing your personal finance seem to outweigh the delay in the gratification of ownership.
Written by Allen Lee
Read more posts by Allen Lee