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Can I 'prepay' my credit card and use it like a debit card to help me spend more responsibly?
January 12, 2010 2:50 PM   Subscribe

Can I 'prepay' my credit card and use it like a debit card to help me spend more responsibly?

I like using my credit card for its benefits (rewards, insurance, security, etc) and I have been responsible about it. But lately... slightly less so, and it seems like all those warnings about how hard it is not to spend more with a credit card than with cash seem to apply to me also.

In the past I have occasionally ended up with a positive balance on my card, either by overpaying accidentally or because of a return or something. It didn't seem to make any difference or hurt anything.

So I was thinking of deciding for the month how much I want to spend on my card, 'paying' that amount at the beginning of the month, and then spending that balance down - as though it were a debit account.

Does this work? Not psychologically - I think it's at least worth a try, but in terms of credit card rules or other things that could go wrong?
posted by Salamandrous to Work & Money (23 answers total)
 
You're looking for a "secured credit card."

If you try this with a regular card, they may eventually just reimburse you since they don't benefit at all from this arrangement. (I accidentally payed my way into a $250 credit on a card, and they finally just cut me a check--unwanted and unsolicited--for the outstanding credit.)
posted by availablelight at 2:55 PM on January 12, 2010 [1 favorite]


What did your credit card company say when you called to ask them this question, Salamandrous?
posted by jdroth at 2:56 PM on January 12, 2010 [2 favorites]


[payed=paid]
posted by availablelight at 2:56 PM on January 12, 2010


Do you have billpay with your credit card? You could just pay what has been posted daily/weekly/etc. You don't have to wait for the bill to come. The credit card company isn't going to like a credit balance, but there's nothing stopping you from paying your bill more than once per month.
posted by birdherder at 3:00 PM on January 12, 2010


Yes, I've done this - ie, accidentally paid off $500 or so to the wrong credit card, giving me a large debit which I then work off. The problem I had, though, was that the psychology there worked against me. Instead of "I can only spend $400 more until I'm back up to zero," it was more like, "Woo-hoo, free money! I can buy ANYTHING!" Obviously I knew that it wasn't free and had already come out of my checking account. It's just that to me, a bigger deterrent to spending is an imaginary counter climbing ever higher that I need to pay off instead of an imaginary counter running its way up to zero.
posted by billysumday at 3:05 PM on January 12, 2010 [1 favorite]


Trouble is that the credit card won't stop working after you have reached the end of your monthly allowance......it'll work until you've reached your credit limit. So unless you can overcome the fact that you 'know it still works' after you've used your monthly allowance you're in danger of digging yourself an even deeper hole.
posted by koahiatamadl at 3:12 PM on January 12, 2010


Many secured credit cards often charge you a crazy amount to use your own money (like 25% APR). Be careful if you decide to go that route.
posted by small_ruminant at 3:19 PM on January 12, 2010


Can I suggest you get a charge card? For example, an American Express charge card?
posted by jchaw at 3:23 PM on January 12, 2010 [1 favorite]


have you looked into having another checking account with a debit card? some of them do offer rewards now (for example, the Regions Platinum Visa check card has rewards and a discount program type thing). given that this would just be a checking account, you could just dump some money in it, and when it's gone, it's gone.
posted by mrg at 3:24 PM on January 12, 2010


How about switching to a charge card (like an Amex) instead? I have issues with spending too much on credit cards, so in the end I dumped my credit cards and got a charge card instead. That way I know that whatever I spend that month, I HAVE to pay off when the bill arrives. It keeps me in check, and out of debt.
posted by Joh at 3:24 PM on January 12, 2010


You could probably do this with prepaid Visa debit cards (the Rush Card is one, probably not a particularly good one, but I saw a commercial for it last night), but I don't think your existing credit-card company is going to let you do this--as others have pointed out, the credit card company's goal isn't to help you spend more responsibly--in fact, it's pretty much the opposite.
posted by box at 3:25 PM on January 12, 2010


When I paid by check, I used to pay extra on my card, so I could skip the next month's billing. You can probably set up a monthly payment. I finally succumbed to using my credit card for lots of stuff, so I make a large, automatic, scheduled monthly payment on line.
posted by theora55 at 3:36 PM on January 12, 2010


Just wanted to point out that when you use your card and pay it off, it is not true that the credit card companies don't make any money -- they charge merchants 2 to 3 percent for the transaction ... they might WANT to make more, but in today's low-interest-rate/low-growth economy, the merchant fees are a pretty good earning stream. So there doesn't seem to be that much pressure today to kick "full-payers" off the system...
posted by Bet Glenn at 3:52 PM on January 12, 2010


Yes, this works. I have carried a positive balance (up to $10,000) at one point on my credit card. Furthermore, I have carried a positive balance for a year on a business credit card. Unlike other commenters, I was never cut a check.

A girlfriend used to set up some regular payment of $2000 every month into her card because she could be bothered to look at her statements (crazy but whatever). She would regularly spend less than that so she built up a credit balance.

None of those examples are even close to smart money management but since checking accounts don't pay interest it is about the same as storing money in your checking account. But bottom line, your idea will work.

FYI both those examples were in Canada
posted by FastGorilla at 4:13 PM on January 12, 2010


I should add: Once I phoned to find out if they would cut me a check for my positive balance and they said it would cost me around $15. So don't do this if you expect to need all that money to spend in a place that does not accept CCs.
posted by FastGorilla at 4:16 PM on January 12, 2010


I was going to make the same suggestion as mrg. Set up a separate checking account, and only use that account's debit card. With most banks, you can even set it up to automatically move some set dollar amount into the account every day/week/month/year/whatever.
posted by Blue Jello Elf at 4:25 PM on January 12, 2010


Here's what a friend of mine did with great success:

Set up online payment through your credit union (it's free!) and send an online payment for every charge to the credit card company the same day you make a purchase with your card. When you hit your preset monthly (or whatever random time period you choose) limit, freeze your card in a milk jug or coffee canister filled with water 'til you're ready to start the cycle over again. It will take awhile, but you'll learn how to be more discerning in your purchases and will eventually be able to make it without freezing the card in water. You'll never have to worry about late fees or interest, plus you'll learn how to pay as you go - which IMAO is the only way to use a credit card. Good luck!
posted by torquemaniac at 6:44 PM on January 12, 2010


I used to work for the credit card department in a bank, but IANYBanker: Your plan, generally, works, but banks hate it -- that's not what a credit card is for. You can do exactly that with a debit card, or even PayPal debit card (yes, PayPal haters will tell you never, ever give PayPal money, but YMMV) by opening a second checking account with your bank. Many banks will even let you set up an automatic transfer between the two accounts to fund your 'spending money' account. Your main account keeps all your money, and monthly transfer the funds to the 'spending money' account like an allowance.

Banks make money on credit cards by charging you fees. They don't get fees if you don't carry a balance -- and, if you overpay into a credit card, it doesn't 'fund' the bank's ability to lend like a savings or checking account does. Banks keep internal 'score' of how good a customer you are, and using your credit card that way will probably count against you. Especially if you earn airmiles or get other usage bonuses for card transactions.

The biggest pain in the butt complaint I got: If you have a $500 credit card, and you overpay $500, the largest transaction you can make is still $500. That 'overpaid' amount doesn't technically get treated as a balance until the card is 'paid' from it, after the transaction is made. Guys with airmiles cards would send in $10,000 over on their $10,000 card , then call from the car dealership or travel agency very, very pissed because we denied their $20,000 purchase.

Instead of pre-paying the credit card, use the credit card the way it's supposed to: unless you're taking cash advances, you have like 20-30 days *interest free*, and if you pay off before the end of the interest-free period, you never pay a finance charge. While you're out charging things on your card, your money could be earning you interest in a savings account. Get a credit card with a spending limit approximately what you want to live on, then deposit your living funds into savings. You absolutely, positively, must never be late, and never go over your credit limit. That goes for no matter how you use the card, but using a credit card as a credit card and earning interest for a few weeks on your funds is the best way to do it. And, yes, banks hate this credit card usage, too, but it's a more correct way of using a credit card.
posted by AzraelBrown at 7:25 PM on January 12, 2010


You can probably do it if you want. Some credit card companies get squicked by the behavior you describe because it sets off fraud bells.

Will this routine help you spend more responsibly? Hard to say, but at first blush I doubt it.
posted by herrtodd at 8:42 PM on January 12, 2010


Two of my three credit cards explicitly say that I can't do that. So check to see if you can do it with yours--it'll be in the cardholder agreement.

Or if you're too lazy to read the cardholder agreement, see if you can pay more than your outstanding balance online. My cards that won't let me do that have three options: minimum balance, other amount, and outstanding balance--under the last of these, it says "AMOUNT CANNOT BE MORE THAN OUTSTANDING BALANCE".
posted by Sidhedevil at 9:17 PM on January 12, 2010


There are debit cards that have rewards programs -- you could simply get one of those. My debit card has a frequent-flyer miles program.

It's actually reinforced the "get out of the credit card" habit because I think "ooh, I need to use my debit card to get the miles!" I've almost never used my credit card in the past three years since I signed up for the debit one.
posted by EmpressCallipygos at 6:09 AM on January 13, 2010


Thanks everybody.

My credit card has really good benefits (2% cash back, no international fees, etc) so I'm definitely not switching to a worse prepaid card. I didn't realize there were debit cards wih potentially comparable benefits though, so I will check that out as well as the charge card options.

It is technically possible for me to overpay, at least when I pay through my online banking billpay, which is also what I'd have to do to pay more often than three times a month - for some reason the card's own online payment setup even limits the frequency of payments.

This wouldn't be a way to increase my credit line, just hopefully a way to concretize my credit spending a bit more.

They're already not making money off me via interest since I've never carried a balance long enough for it to accrue, so hopefully this wouldn't make any difference. If I can't find a comparable charge/debit card, I'll at least give this a shot.
posted by Salamandrous at 6:58 AM on January 13, 2010


Guys with airmiles cards would send in $10,000 over on their $10,000 card , then call from the car dealership or travel agency very, very pissed because we denied their $20,000 purchase.
This trick actually works with some cards. I've done it.
posted by Lame_username at 11:52 AM on January 13, 2010


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