Should I Use a Prepaid Credit Card While in a Chapter 13?

The reason I think it is a bad idea to use a prepaid credit card is because of the outrageous fees that are hidden from the buyer.

Prepaid credit cards often appeal to Chapter 13 debtors because they allow a person to use a credit card without violating the prohibition against incurring new debt while being in an active Chapter 13. While you are in an active Chapter 13 case, you cannot use any regular credit cards because that would be incurring new debt. In theory, using a prepaid credit card is just like using cash except for the awful fact that the prepaid credit card company charges a fortune for using it.

I think it is a much better idea to use a debit card that takes money directly from your checking account. In contrast to a prepaid credit card, debit card charges are clearly listed on your bank statements.

Zachary Stauffer, in the “Tricks and Traps of the Card Game” (pbs.org), reports that prepaid credit cards have “been criticized by consumer groups for a lack of transparency regarding hidden fees that can drain the balance of a prepaid card. Many charge fees for balance inquiries, point of sale transactions, cash withdrawals and inactivity.”

I think it is bad idea to ever purchase prepaid credit cards.

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