PLASTIC TO BEAT THE CRUNCH

AS our debts rise and our credit runs out we’re being strongly advised to stick to a budget.

But with Christmas just six weeks away, one in four of us is still paying for last year’s festivities when we overspent by a horrifying £600million.

Despite the massive cut in the Bank of England base rate to 3%, taking out more plastic to fill the gap would be insane in the current climate – unless that plastic is a pre-paid card.

Steve Willey of comparison site moneysupermarket.com said: “It’s not as easy to get credit as it used to be and we can no longer move our credit card balances around so easily and cheaply.

“It is prudent to repay our ­existing debts and budget the rest of our finances – and a pre-paid card allows you to do this.”

Pre-paid cards are nothing new. Traditionally they have been used for travel money by holidaymakers but the charges were high.

Now fees are lower and with more of these cards coming on to the market experts have seen their potential as a tool to help us keep our finances in control.

“You can’t get overdrawn because you can only use the money that’s on the card and the fees aren’t as costly as they used to be,” said Willey.

“They are good for budgeting and for those who have lost their credit status and can’t get plastic.

“There are very few downsides but if you have a good credit ­history and know how to take advantage of credit then they may not be right for you.”

Pre-paid cards have an issue fee of between £5 and £10. Then you load money on to them which you can spend.

But you can’t go overdrawn because you can only spend the money on the card. That’s why they are so good at
helping us to budget properly.

You don’t have to have a bank account to have a pre-paid card and if you’ve got a poor credit history which stops you having a credit card or debit card you can still take out a pre-paid card because there’s no credit or overdraft facility.

You use the card just like a credit or debit card but the bonus is there’s no interest to pay and no late payment or over-limit fees. And they are much safer than carrying cash around.

You can withdraw cash at hole-in-the-wall machines and, as long as there is money on the card, you can use it to buy in shops, online or by mail order.

Most of the cards are backed by MasterCard, Visa or Maestro so they are accepted by most shops in the UK and around the world.

But they can come at a price. Most are free to reload at Post Offices or through a bank account but if you reload at PayPoint you’ll probably have to pay a fee of up to 3%.

Some cards charge for cash withdrawals from a basic 50p up to 2.95%. And some also make a charge of up to 2.95% for new purchases.

Pay-as-you-go pre-paid cards are more likely to have fees for new spending and cash withdrawals but those with a monthly fee tend to have no charges for new spending and lower charges for withdrawing cash.

However, Andrew Hagger of comparison site moneynet.co.uk pointed out that if you take advantage of online shopping discounts they can offset the charges.

“These cards are a great way to manage your budget as they ­simply don’t allow you to spend more than you have available,” he said.

And this week the Daily Star has launched its own pre-paid card which carries a host of extra benefits including cashback and discounts at hundreds of retailers when you use the card.

Not only that, there are ­exclusive deals for Daily Star card holders which include ­special discounts at Halfords, Pontin’s, Joe Browns clothing, discounted days out and driving experiences.

“These exclusive benefits and competitive fees are what make the Daily Star pre-paid card head and shoulders above the ­competition,” said Robert Avery at the Daily Star.

» MORE 'CASHPOINT' HERE...

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