Money Up Front: 5 Tools for Paying Right Now
June 29th, 2007 | by rachel |
In her recent article, “Many In U.S. Don’t Have Bank Accounts”, Jeannine Aversa indicates that “As many as 28 million people in the United States are forgoing traditional financial institutions…” More than likely, those people are living, working, and buying without plastic!
In today’s society, there are very few things that cannot be bought with some form of plastic. Since Americans are accumulating more and more debt, perhaps we would be better off if we were forced to pay with cash more often. Certainly, we will better off if we understand the tools that we have available to us when we have to pay cash up front.
TOOL #1: PERSONAL CHECK
This is a check backed by YOUR personal bank account with your local bank. If you have enough cash in your account when you write the check, it will be cashed for the person to whom it was written.
TOOL #2: CASHIER’S CHECK
Basically, this is a prepaid check. It is issued by the bank AFTER they collect the money to cover the check. By collecting the money first, the bank can guarantee that the check will be good.
TOOL #3: CERTIFIED CHECK
This is a slightly different type of check from a cashier’s check. This check is written on a personal account and guaranteed by the bank but only after verifying AND transferring the funds from the account holder to the bank. Additionally, these checks are stamped “certified” and they are signed by an officer of the bank that is issuing it. Because of the increased possibility of fraud, many banks charge to issue these checks and some financial institutions don’t even offer them anymore.
TOOL #4: MONEY ORDER
Also prepaid, a money order gives a little more protection to the recipients of a money order. “Cashing” a money order involves basically the same process as cashing a check. Money orders are issued through financial institutions and the U.S. Post Office. The issuer usually charges a fee to issue the order and there are limits on the value that a money order can have. Some industries don’t accept money orders because of the high probability of counterfeiting and fraud with these instruments.
TOOL #5: PREPAID DEBIT or SECURED CREDIT CARDS
If you have ever used a gift certificate, you have, for all practical purposes, used a prepaid credit card. Prepaid Debit cards operate the same way and, increasingly, these payment methods are being used by people that don’t have bank accounts as well as by people that are working to repair their credit.
Prepaid cards are appealing for a number of reasons:
- Built in spending control and monitoring of purchases
- Convenience – They look and act just like a credit or debit card.
- Security – Many of the branded cards include coverage under the limited liability plans that cover credit and debit cards.
- Many employers are willing to “pay” their employees by “loading” a prepaid card with their salary. Since the cards are reloadable, they can automate the process each pay period.
- Good for students and as gifts
- Can be used instead of traveler’s checks
- Can be reported to credit bureaus to improve your credit score
So, what’s the catch?
- There is NO credit associated with a prepaid card. Even though they look, feel and act like a credit card, you can only spend up to the amount that was loaded on them. Once that is gone, the card is no good until more money is added to the card.
- Many issuers of these cards charge fees to set up the cards and to “load” the cards. Additionally, depending on the issuer, there could be monthly fees, transaction fees, transfer fees, etc. BE SURE you know what fees will be associated with the card before committing to one.
- Do not require use of a PIN (personal identification number) to withdraw funds.
It has not been uncommon in recent years to hear predictions of a cashless society. Just from observing our day to day financial activities, it would be easy to conclude that there is not as much cash flowing as there used to be. There are, however, plenty of ways to use and spend cash when you need to!
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