Close-up: Prepaid Phone Card

Physician's Money Digest, January 2007, Volume 14, Issue 1

n.

Prepaid Phone Card: A card that you purchase, exchanging moneyupfront for airtime minutes to make long-distance phone calls.

In a convenience-oriented society, prepaid phone cardshave become extremely popular. According toStandard Register's National Consumer Survey ofPlastic Card Usage, 29% of all adults use prepaid phonecards. That percentage is likely to rise if teenagers andadolescents are included. Slightly more than one half ofpeople who use prepaid phone cards report using themwhile traveling.

Adding to the popularity of prepaid phone cards is thepotential savings they offer. The survey notes that comparedto a 3-minute call made by payphone, traditionalcalling card, collect, or person-to-person, prepaid cardscan save travelers as much as $5 per minute on long-distancecalls. But, before running out and purchasing justany prepaid phone card, there are some things of whichyou should be aware.

Better Budgeting

A prepaid phone card is only good for the exact numberof of minutes you purchase, so you cannot go overbudget. If you're trying to curb your spending and you purchasea $50 phone card, that's exactly what you'll get—$50 worth of long-distance phone calls. But since phonecards often have expiration dates, make sure you monitorwhen you use your minutes so that you don't lose out ontime you've already purchased.

Because of the way phone cards work, you'll alwaysknow how much time you have left on a given card.According to the Federal Communications Commission,you use a prepaid phone card by dialing a toll-free accessnumber and entering the personal identification number(PIN) that is listed on the card. An automated voice will askyou to enter the phone number you're calling and willinform you of how many minutes remain on your card.

One thing to keep in mind is that there are two types ofaccess numbers associated with prepaid phone cards.According to 1stphonecard.com, local access numbers arethe phone numbers in your area in which you can use yourphone card—usually with no long-distance charges. Thesephone cards often feature lower rates and more minutesthan cards with toll-free access numbers. Toll-free accessnumbers start with 1-800, 1-888, 1-877, etc, and you willbe charged a slightly higher rate because the phone call isrouted using the least busy line. Although you have slightlyfewer minutes, toll-free access numbers tend to be morereliable with fewer busy signals.

Buyer Beware

One of the caveats regarding prepaid phone cards isthat you may never know which long-distance carrier isassociated with your card. The paper trail begins with thelong-distance carrier, who in turn sells blocks of minutes toresellers. These resellers collaborate with the cardissuers—the folks who establish the card rates, set upaccess numbers, and maintain the PIN numbers andaccount information. The cards are then sold to distributorsor retailers before they reach the general public.Passing these minutes along often muddies the waters.Many phone cards are not backed by high-quality connections.As with almost everything in this world, you getwhat you pay for. It might be worth a few more penniesper minute to ensure that you and the party you're callingcan hear each other.

There are also hidden fees that may be associated withcertain prepaid phone cards. Much to your surprise, youcould find yourself facing activation or setup fees, minimumcall lengths, quick expiration dates, or call connectioncharges. Suddenly, the 50 or 100 minutes you thought youwere purchasing have dwindled considerably.

Prepaid phone cards have their advantages, but as withany product or service purchase, it's wise to do your homework.Make sure the phone card company you're dealingwith offers the highest level of customer service. You don'twant to get put on hold when you need a call to gothrough.

Phone Card Caveats

Fifty minutes for 5 cents a minute? Sounds likea great deal. But according to howstuffworks.com,there's more to prepaid phone card charges thana cursory glance will reveal. The following areadditional costs to look out for or scams to beaware of when using a prepaid phone card:

•Payphone fees. In addition to the per-minutecharge, connection fees, and any othercharges you may be paying, if you make your callfrom a payphone, you should expect to pay anadditional surcharge.

•Large billing increments. These can be ashigh as 5-minute increments, meaning that evencalls under 1 minute use 5 minutes of the card'svalue. In other cases, any call less than 10 minutes,but more than 5 minutes, uses 10 minutes of thecard's value.

•Delivery charges. If you order your cardfrom the Internet or another source, you may becharged a delivery fee. You also stand the chance ofnot receiving your card or not receiving a valid PIN.

•Invalid PINs. There have been instances ofPINs that don't work.

•Minute usage beginning as soon as youdial. Sometimes charges do not begin when aconnection is made, but once you dial.

•High rates to mobile phones. Some callsmade to wireless or cellular phones may becharged more.

POP QUIZ

1) What percentage of adults use prepaid phone cards?

  1. 23%
  2. 26%
  3. 29%
  4. 32%

2) Most prepaid phone cards do not have expirationdates. True or false?

  1. True
  2. False

3) Phone cards with local access numbers usually featurethe following:

  1. lower rates
  2. more minutes
  3. reduced quality
  4. all of the above

4) Some of the hidden costs associated with prepaidphone cards include:

  1. activation fees
  2. minimum length calls
  3. call connection charges
  4. all of the above

5) Prepaid phone card minute usage does not beginuntil a connection is made. True or false?

  1. True
  2. False

Answers: 1) c; 2) b; 3) d; 4) d; 5) b.