Prepaid 'Credit' Cards Keep You Honest

But before cutting up all those credit cards, consider the drawbacks to dropping your Mastercard for a Facecard. While the Prepaid cards mimic the functions of a credit card, they don't help users establish credit history - one of the top reasons college students open a credit card in the first place. And while there is no interest income for the issuer, companies do charge assorted fees for activation, monthly use, or even a per transaction fee to maintain the account.

For example, the AccountNow Prepaid Visa charges a $4.95 monthly fee, a $1 transaction fee on purchases made using a pin number and activation is only free if done through direct deposit. Similarly, the AchieveCard Prepaid Mastercard only offers free activation through direct deposit, and tacks on a $9.95 monthly fee. So while there are no fees for making mistakes like missing paying a bill, the charges can still add up.

"Prepaid is not better than credit, just as credit is not better than prepaid," says Brian Greehan, the Director of U.S. Communications for MasterCard. "Instead, they each have certain product features that allow consumers to choose the payment vehicle that most satisfies their needs -- for some folks that's credit, for others it's debit and for some it's prepaid."