Topic: Tuxedo helps people in credit crunch times
Costs are rising faster than salaries, pushing many bank balances ever closer to that red precipice.
The problem with current accounts is you often aren’t aware that you’ve dipped into your overdraft until you receive your month-end bill, and by that time you’ve already racked up a load of interest and fees.
In most instances you wouldn’t have made that transaction in the first place if you’d known it would push you into the red. At the very least, some kind of instant notification would have been nice so you could have made an informed decision.
That’s why prepaid cards can be a great help, as they don’t allow you to go overdrawn. True, they don’t pay interest and the transaction fees can be higher than current accounts, but for the cash-strapped household, the ability to better control your finances can prove a far greater benefit.
Choose a card carefully
Much like mobile phone deals, prepaid cards come in pay-as-you-go (PAYG) or pay monthly varieties. As a general rule, the latter charges lowers fees for transactions, top ups, etc than PAYG, so the card you go for depends on how often you’re going to use it.
It may seem like a strange idea, switching to a card you have to pay for every month in order to control your finances. But when you consider the massive overdraft charges bank hit you with for going just 1p over the limit, that fee suddenly seems a lot less important.
Besides which, there is the very real possibility that banks will soon be charging monthly fees on standard accounts anyway.
Do your homework
Once you’ve decided between a pay monthly or PAYG card, make sure you take the time to compare the various providers’ deals as the relative competitiveness of each will depend greatly on how you plan to use it.
For example, both Cashplus and Tuxedo offer a £4.95 pay monthly card. Cashplus will charge you £2 for every withdrawal but allows you to top up your funds for free. Conversely, Tuxedo charges just 50p for withdrawals but up to 3% for top ups.
So if you’re confident you’ll be able to top up once at the start of the month and spend sparingly throughout the month, it makes sense to opt for the Tuxedo card.
But if you aren’t financially prudent and tend to wipe out your balance in a matter of days, you’ll need to top up your card with smaller amounts every week, and thus the Cashplus card is the one to go for.
To be used in conjunction with a budget
While there’s no doubt using a prepaid card makes you more aware of the money you spend, you can’t expect to just switch to one and instantly save loads of money.
Rather, the prepaid approach works best when used in conjunction with a strict budget. No, this isn’t much fun, but then again neither is stressing about making ends meet.
These two tools are extremely complementary when it comes to cutting costs: A budget shows you how to spend less, and a prepaid card makes it impossible to go over that budget.
Attention to detail
Don’t just jot down your big monthly outlays when drawing up a budget. Take note of every coffee and chocolate bar you buy as well.
Ideally, you should note your expenditure over a period of a few months in order to get an accurate reflection of your finances – your gas bill will be far higher in the winter than the summer, for example – but if you don’t have the time (or inclination), a shorter timeframe is fine.
Now put together your budget, noting all your income and expenses. Be sure to split it into various sub-sections, such as ‘home’, ‘transport’ and ‘entertainment’.