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TheStreet Open House

How to Choose an Emergency Card for Your Teen

NEW YORK ( LowCards.com) -- Once your teenager is driving, it is a good idea that he or she have access to some funds in case of an emergency. You don't want your loved one stranded on the side of the road, unable to pay for a tank of gas or a tow truck.

Many people opt for an emergency credit card for their teenager, but this may not be the wisest choice. As a parent, you have a number of financial options. Which one you choose will depend primarily on costs and the financial responsibility of your teenager a decision only you can assess.

Prepaid card

Getting a prepaid card for a teenager may be the least risky option to take from a parent's perspective. In this case, you simply sign up for a prepaid card and deposit however much money you want. If your teenager earns an allowance, you could start putting that money onto the prepaid card. The only problem will be if your child spends through it and has no money left over for emergencies.

Reloadable prepaid cards are usually set up in a person's name, so you will have to determine if you want it in the name of you or your teenager. If you set it up in your name, make sure your teenager knows the PIN in case money has to be taken out at an ATM.

Prepaid cards come with setup fees, which are usually less than $10. But then you have to be concerned about other fees, including a monthly fee, annual fee, a cost to check your balance and a deposit fee. Read the terms closely to determine if this is an affordable option for emergencies. Ultimately, you want something with the lowest fees possible.

Bank account with debit card

If you want to set up a checking account with a debit card, you could do that as well. This will be similar to a prepaid card, but it will be something you can control at your bank. Make sure the account you set up does not allow overdrafts. Your teenager may go on a spending spree without your permission, and the last thing you want is $30-plus overdraft fees for every transaction that pushes beyond the account balance.

The good thing about emergency bank accounts is that you can easily transfer money from your account if necessary. With a prepaid card, a transfer could take three days or more to complete. If your account comes with high fees, though, it may not be a good fit. That is why you have to review the terms. Call your bank and check out the fees associated with a checking account with a debit card.

Credit card

Your teenagers may be too young to get credit cards in their name. If you want to set up a credit card, it may need to be in yours. Make sure this card has a low credit limit, and closely monitor the charges. Anything that goes wrong will affect your credit score.

Credit cards are a good choice if you don't have the money to put into a prepaid card or checking account. They come with high interest rates, though, so you'll want to pay off your balance in full at the end of each month. This may also be a good way to begin teaching your teenager about budgeting and money management, but remember that a credit card allows your teenager to spend up to whatever credit limit is on that card. You'll need to determine if your teenager can be trusted with financial responsibility that will ultimately, actually, be yours.

Secured credit card

Secured credit cards are a combination of prepaid cards and credit cards. You put up the money for the balance, and that acts as your credit limit. If you deposit $500, the card will have a credit limit of $500. The catch here is that you have to pay back any money you spend.

You can get your money back if you cancel your card, but until then, you will have a chance to build credit by using the card and paying back the balance. This is not as risky as regular credit cards because you do not incur debt. You will have to pay interest and a number of other fees, so check out the total fees before you choose this option.

Bill Hardekopf is chief executive of LowCards.com, which compares and rates more than 1,000 credit cards. He is the co-author of "The Credit Card Guidebook."

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