The banks are bruised and bleeding….but fighting back.

And they’ve targeted a demographic that promises to be very lucrative:

College Students

For background on this new trend, check out “The New Card on Campus: Prepaid Debit” in the Wall Street Journal (9/11/08, page D1) by Mary Pilon.

We all know the horror stories on how students were inundated with credit cards and racked up enough debt to ding their credit reports well into their working career.

The solution was supposed to be debit cards, on the theory that you can’t charge more than you have in the account. But with overdraft protection, this barrier was soon breached, and the late penalties kept piling on.

And that brings us to the cousin of the prepaid phone card or cell phone:

Prepaid Debit Cards - Not so Benign

What makes them so diabolical is that they seem to offer hope for spending restraint, but when you look at the fine print you see that they are larded with late fees, inactivity fees, ATM fees….all the usual suspects.

And they come with all the other baggage of debit cards.

So it’s time to review the basics.

1. No matter how responsibly you use debit cards, prepaid or the original flavor, you will not get a lick of support for your nascent credit rating.This is no small matter, in a world where everything from buying and leasing a home or car, or even landing your first career employment, is referenced wholly or in part based on your credit history.
2. Once spent, your cash or debit balance is gone, without recourse. You may have hooked up with a bogus seller on E-Bay or bought something that was defective or never delivered.Tough.With a credit card, virtually every purchase is made on consignment, and can be challenged and reversed with the bank on your side for a change.
3. We return to our familiar mantra.It’s easy to know when you bought the wrong product. Anytime there is a service fee for anything, you paid too much. There are an abundance of no fee credit cards just for the asking, and if used as a convenience (paid in full during the normal billing cycle) there is never a fee paid

It comes to this…there are certain life skills you must master.

Driving your car, insured, without causing property damage or bodily injury.

Working a meaningful job, where your services are wanted and well rewarded.

Managing your personal finances…keeping your checkbook balanced and all bills paid in a timely fashion.

When a potential employers scans your credit history and learns that you cannot manage the everyday task of meeting your obligations, you can’t really blame them for moving on to the next candidate in the queue.

Let’s starting treating that plastic with some serious respect.

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Posted: 09|24|08 at 6:15 am. Filed under: credit cards, debt.
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