This is a two part series on prepaid services. Tomorrow Miranda will be sharing prepaid services that are NOT worth having.
Every year, I have two pest control treatments aimed at keeping spiders (especially the hobo variety) at bay. Since I prepay my service at the beginning of the year, I end up with a discount. It’s a pretty decent discount, too. My discounted pest control is a success story associated with prepaid services. I can also get lawn care services at a prepaid discount in my town. Prepaid services, in some cases, can save you money, providing you with a discounts, or guaranteeing you lower prices down the road.
The main risk, though, with prepaid discount services, is that the company may go out of business before the contract is fulfilled, and you could lose money. Another issue is that deflation
- Credit Card: One way you can curb your spending or rebuild your credit is with a prepaid credit card. With these cards, you prepay a certain amount, and then it is deducted. It works a lot like a debit card. However, unlike with debit cards, many prepaid credit card issuers will report your good habits to a credit bureau. You do need to watch out for fees, though. In many cases, a prepaid credit card that can help you keep track of a college student’s spending, or help you rebuild your credit, can be a smart move.
- Cell Phone: Prepaid wireless calling plans or prepaid minutes can be a real money saver, depending on your cell phone habits. My husband and I have prepaid cell phones, and we rarely spend more than $20 a month — for both our phones. Even with the $20 a month we pay for our VoIP home service, we are still coming out ahead. We get unlimited calling on our home phone, and we limit our cell phone use. So, for $40 a month we have mobility and unlimited talk time. That’s much better than paying upward of $60 a month (the cheapest we could find for unlimited talk for two of us on a family plan). Of course, those who use their cell phones a great deal, and are interested in texting, may be better off without a prepaid plan, depending on usage.
- Travel: In some cases, prepaid travel may be worth it. These are plans in which you agree to a cruise or a vacation ahead of time, and then make payments until it is time to go. Depending on when you sign up, and the package involved, you can save money, avoiding increases in costs. My parents went on two successful trips to Great Britain in this manner. You do have to be careful, though: Make sure your prepaid company is reputable, and find out what sorts of guarantees there are if the trip is canceled or the dates change. Also, find out policies for refunds if you get sick, or if there is a death in your family.
- Mortgage Points: Prepaying interest can help you save money in the long run. Mortgage points can be used to lower your mortgage interest rate. Each point costs 1% of the purchase price of the home. However, each point you pay usually corresponds to 0.25% lower. So, if you are buying a home for $180,000, each point will cost $1,800. Two points will cost you $3,600, and lower a 5.50% rate to 5.00%. Figure out how much you will save each month, and determine how long it will take you to break even. Normally, the longer you plan to stay in the house, the more likely it is that prepaying your interest makes sense.
Saving money over the long run is possible when you prepay in some cases. However, you want to be careful, and make sure you understand exactly which services you are prepaying for.
This is a guest post by Miranda Marquit. Miranda is a journalistically trained freelance writer and professional blogger working from home. She is a contributor for Mainstreet.com, Personal Dividends and several other sites. Miranda is not affiliated or endorsed by LPL Financial.