The following is a post from Neal Frankle, CFP® and owner of the lovely personal finance blog Wealth Pilgrim. His most recent post is his Prosper Review.

If you own a small business, you are going to face a cash crunch sooner or later. If fact, many veteran business owners face this dilemma quite often. But should you use your credit card to finance your business?

Of course, nobody likes to pay interest to credit card companies because it can be extremely expensive. And taking on this kind of debt is especially risky when it comes to your business. That’s because you really never know if the investment you are about to make is going to pay off. And if it doesn’t, how are you going to pay back that loan? Is it going to crash your good credit score? You can see there is a lot at stake. Here’s how I suggest you approach the question when you are forced into this situation.

1. Do you absolutely have to spend the money right now?

If you are running a successful business you should be able to plan ahead. The more time you have before you have to spend that money means you will have more financing alternatives. Can you delay the expenditure? If you are forced to make a decision now, it might mean that you haven’t done the right planning. That could be a far more important issue to tackle than this particular investment. Find out what keeps you from doing effective business planning and correct that problem pronto.

2. Is the credit card your only choice?

You might have more financing avenues than you think. Have you considered a home equity line of credit? Have you looked into a peer-to-peer lender like Lending Club? These companies put people who need to borrow money like you together with people who want to make loans. The interest is far lower than the typical credit card if you have a good credit score. Have you approached family and friends to invest in your business? Have you looked into getting a new credit card with a higher limit? This can be especially attractive if they offer you the opportunity to take a cash advance and pay no interest for an extended period of time.

3. How are you going to spend the money? When is the payback? What is the risk?

If you borrow money from a credit card company, you take on debt. Ask the following questions to determine if it’s worth it or not. Are you using the money to expand your business? How long will it take to recoup that investment? And what are the risks that the investment won’t payoff. Let’s take an example.

Say you own a pizza parlor and you need $5,000 for a new oven. You estimate that it will take a year to pay that $5,000 plus the interest. If you are an established business, it’s easier for you to estimate the risks of doing this. You know how much business you can generate with the new oven. But if you are just starting your company, the risks may be very high. In that case, you may have no idea as to how long it will take to repay that money if ever. As the uncertainty rises, the intelligence of tapping your credit card for this investment falls.

Bottom line – if you can’t say with a high degree of certainty how long it will take you to pay back the money and what the risks are, don’t do it.

4. Do you need to tap your credit card just to stay in business?

You might be in the unfortunate situation of choosing between staying in business and using the credit card or closing your doors. If this is your situation, you have to really put on the big boy or big girl shoes and take a hard look at where your business is. If the nature of your business is cyclical, this could be fine. Again, an established business with verifiable receivables can use credit card financing to get through a rough patch. But if you can’t reasonably foresee the situation turning around, it might be time to do something else. I’ve seen dozens of situations where people keep businesses open far longer than they should. I understand this of course. We often identify who we are with the success of our business. But this is a mistake and a very expensive one.

If you are seriously considering using your credit card to fund your business you may not really like what I’m saying here. I understand this completely. But you will be far better off if you separate your emotions from your logic when you approach this issue. Only use your credit card to fund your business if you know without a shadow of a doubt that the money will be there to pay off the debt in a reasonable time. If you have no basis for thinking that, you have no reason to go further in debt.

Please join us in welcoming the newest member of Team NerdWallet, credit card ninja Ellie Wilkinson!

As we’ve been saying, prepaid debit cards are high in fees and low in rewards, especially when compared to free checking accounts (which still exist, by the way): a typical user could pay an average of $300 a year. Even an industry study which supports prepaid card use acknowledges that fees can top $380 a year.

And one of our biggest concerns about prepaid cards is that they’re unregulated, with no easy way to compare and understand their fees. It’s our job to read disclosures, and even we had trouble deciphering the fees when we built our prepaid comparison tool. And if we spend hours staring at terms and conditions, we’re willing to bet that your casual user doesn’t always know what he’s getting into.

Fortunately, someone’s been fighting at the federal level to curb prepaid debit card fees and increase transparency in the prepaid card industry. U.S. Senator Robert Menendez, from New Jersey, recently introduced new legislation that will address issues that have plagued owners of prepaid debit cards.

“It seems we have continuously seen these companies become creative when it comes to finding new and more devious ways to make consumers pay more than they have to for what appears to be simple financial services,” Senator Menendez said at a press conference at Garden State Plaza in Paramus, NJ.

Called the Prepaid Card Consumer Protection Act, the legislation Menendez proposed would, in a nutshell:

• Require complete disclosure of all fees before the consumer pays the card, including a wallet-sized summary of the fees and a toll-free customer service telephone number
• Limit the types of fees that can be charged
• Ensure that consumer protections would be offered to owners of prepaid cards (extending the reach of “Regulation E,” the Federal Reserve’s rules implementing the Electronic Fund Transfer Act), as well as FDIC insurance to protect consumers’ money

The Problems with Prepaid Debit Cards

Prepaid cards have largely escaped the regulations that have restricted other forms of payment cards, including even gift cards.

“They are still in the Wild West,” said Charles Bell, a programs director for Consumers Union (publisher of Consumer Reports) who has testified before Congress about the issue of prepaid debit cards.

Even if people have begun to recognize the evils of prepaid debit cards’ fees, these kinds of cards still don’t have the same guaranteed consumer protections as debit cards and checking accounts. With their weak financial protections, owners of prepaid debit cards stand to lose their money if their card is lost or stolen. What’s more, prepaid credit card companies aren’t bound to state their cards’ fees fully and clearly before customers buy them. Currently, you can figure out a card’s fees only after you buy it and attempt to decipher the fine print packed with the card, which “you obviously would need a lawyer to figure out,” Menendez said.

In addition to cutting down on the type of fees prepaid debit cards could levy, Menendez’s bill would require prepaid card companies to clearly and completely state the fees that would be charged, before the consumer buys the card, as well as ensure that consumer protections and insurance are offered to all prepaid debit card owners.

Prepaid Debit Cards’ Growing Popularity

This isn’t Senator Menendez’s first attempt to regulate prepaid cards; he proposed a similar bill last year, which did not make it out of the Senate Banking Committee, according to congressional records. But this year’s proposal comes during a boom in the prepaid debit card industry. According to a recent report by the Mercator Advisory Group, the amount loaded onto “open loop” prepaid cards will increase 383 percent between 2009 and 2012, from $60.4 billion to a whopping $233.8 billion. The total prepaid market size in 2012 is forecast to be $549.7 billion, an increase of over 200%.

So who’s buying all those prepaid cards, anyway? An aide to Senator Menendez says that there are two demographic groups that buy into the prepaid card market.

The first, which are called “unbanked” or “underbanked” consumers, “tend to be African American or Hispanic and in areas of poverty or in areas where, frankly, there’s just not access to traditional banking,” the aide explained.

Young consumers in their 20s makes up the second group, the aide said, and “the problem with that too is that they don’t really understand the differences between what a prepaid card is and what a credit card is; they just assume them all to be credit cards.”

The prepaid cards cater to young consumers with their glitzy celebrity photos and endorsements—which is probably why Russell Simmons, the Kardashians, and Lil Wayne have all appeared on prepaid debit cards.

But for all the glamor of prepaid debit, “when they’re lost, the money’s gone; when they reload them, there are fees that [consumers] don’t know about,” the aide said. “The big part of our bill is to mandate the type of uniform disclosure where, when you buy a card like this, it says, ‘Here are the fees, this is what it’s going to cost you.’”

Alternatives to Prepaid Debit Cards

Senator Menendez’s proposal is a good first step toward increasing regulations on prepaid debit cards. For now, we’d advise you to steer clear of these little buggers. Even if you have bad credit, or really, really like the Kardashians, there are so many better options out there. Our prepaid debit card comparison tool gives a personalized estimate the cost of both prepaid and traditional debit cards, but in general we’ve found that checking beats our prepaid. And if you’re looking to build your credit score, you’ll need a line of credit – a secured credit card might be the best option for doing so.

Looking for your next big coupon score? Soon, you might just be giving Groupon a pass and logging on to your online banking system instead. Earlier this week, Bank of America announced their plans to launch a personalized coupon service called BankAmeriDeals. Here’s how it works: if you’ve got a Bank of America credit card or debit card, personalized special offers will automatically show up in your online account. The coupons will offer a certain percentage off your next purchase at a major retailer, which you can accept by clicking on the link. You’ll pay full price for items at checkout, but you’ll earn the discount at the end of the month via cash back in your Bank of America account.

BofA hasn’t disclosed the list of participating retailers, but we’re told they include large discount department stores, fast food chains and local restaurants. BankAmeriDeals will be available for all Bank of America employees in February as part of its test phase. As of this writing, there’s no release date for Bank of America customers, but we’ve got good reason to believe it’ll show up sooner rather than later.

A brand-new old idea

Despite the fanfare BankAmeriDeals is getting from the press, merchant-funded rewards programs aren’t exactly new. Bank of America may be the first mainstream, brick-and-mortar bank to offer a personalized coupon service, but quite a few online banks, including Ally, FNBO and Smarty Pig, already have similar programs. Even some credit unions have gotten in on the action. CO-OP Financial, which develops financial products and services for credit unions nationwide, manages a personalized rewards program called ShoppingFLING.

Chances are, we’re going to see a lot more of these programs in the future. Banks have been desperately trying to rebuild lost revenue from regulations that curb swipe and overdraft fees. Special coupon offers give them an opportunity to earn commissions from merchants. Bank of America isn’t currently doing this, but they’re definitely hoping BankAmeriDeals encourages their customers to use their debit and credit cards, which gives them more money in swipe fee revenue. Not to mention the fact that special discounts are bound to be more popular than, say, a $5 monthly debit card usage fee? That’s right BofA; we didn’t forget.

Banking data = epic marketing win

It’s no wonder banks are eager to partner with retailers. Your bank account info is every marketer’s dream! They can see exactly what you’ve purchased, how often you buy things, and how you like to pay for them. This info also gives banks a huge advantage over other coupon sites like Groupon; they can offer targeted deals more easily. Banks can make sure their customers receive offers for stores they already like, as opposed to stores they’d potentially be interested in. Plus, bank coupons are easy to redeem. There’s no new account to sign up for, and nothing to print out. Just click a link, spend the money, and wait for the cash back to magically appear.

But what about my privacy?

What? You don’t want to share your highly personal transaction records with marketing executives? Not to worry; none of these third-party coupon providers will identify you as a face or a name. To the system, you’re just some anonymous person who spends a lot of money on coffee, music downloads, and cat food. Speaking of which, would you be interested in saving $5 on $30 worth of purchases at Petco? For the record, Bank of America promises not to share customer data with third parties, retailers and marketing firms included, and you’ll always have the option to opt out of the deals service entirely.

It doesn’t really matter because BofA sucks

We actually don’t have anything negative to say about the BankAmeriDeals program. We’ll be sure to review it when it’s released, but for the time being, we don’t recommend you get a Bank of America checking account or credit card because, frankly, there are a billion better options out there. Like what, exactly? Glad you asked! Here are our top picks for bank accounts with awesome, automatic cash back programs:

Ally Interest Checking with Ally Perks

Ally Perks works just like BankAmeriDeals, except that it doesn’t require any kind of opt-in. If you have an Ally Interest Checking Account, all you need to do is make a qualifying purchase with your debit card, and you’ll receive money back in your account automatically. To see the offers you’re eligible for, log into your account and click on the Current Offers tab under Ally Perks.

PerkStreet

We like PerkStreet because it rewards you for all your debit card purchases. When you sign up for a checking account, you’ll earn 2% back for the first 3 months, and each additional month you maintain a $5,000 minimum balance. You’ll always earn at least 1% back on regular purchases and 5% back on rotating Power Perks categories (limit $250 back per year) regardless of your balance. You can redeem your rewards for cash, music downloads, or coffee gift cards, and the redemption rate is always the same.

Sallie Mae High-Yield Savings Account with Upromise

Sallie Mae’s Upromise program is a discount club that helps you save money for college. Shop through their online mall to earn 1 – 25% cash back on qualifying purchases automatically, or register a credit or debit card to get up to 8% cash back at qualifying restaurants. If you opt to transfer your reward money into a Sallie Mae High- Yield Savings Account, you’ll get a 10% annual match on your earnings.

For credit card rewards: NerdWallet’s online discount tool

This is not a bank account, obviously. We just thought we’d remind you to get extra rewards mileage out of your credit card, since that’s kind of our thing. The NerdWallet discount tool lets you search for deals at online credit card rewards malls. Search by card provider or retailer to discover great deals you’re already eligible for, or see if a different card can save you more money with your favorite retailer.

With the release of her new prepaid debit card, Suze Orman has been hogging the limelight. While reviews of her “Approved Card” have been overwhelmingly scathing, Orman has, in all fairness, launched one of the cheapest celebrity-endorsed cards to date (not saying much). But Russell Simmons isn’t going to let his famed “RushCard” play second fiddle to this prepaid neophyte. A couple weeks after the Approved Card hit the market and sent financial bloggers in a tizzy, Simmons announced fee reductions for RushCard holders. “Look at me! Look at me!”

Because prepaid debit cards are, as a rule, bloated with fees, the goal is to find the card with the least sadistic fee chart. Let’s not waste any time—let’s dive into the numbers.

This chart includes the RushCard’s newly announced terms.

*Conservative estimate of 6 PIN and 2 signature transactions per month; direct deposit; no ATM or other transactions or services; does not include purchase fee

** 2 ATM withdrawals, 10 PIN and 7 signature transactions, and 2 retail cash reloads per month; no direct deposit; no bank transfer; does not include purchase fee

With headlines like “Russell Simmons to Slash Fees,” you’d expect the RushCard to be more on par with the Approved Card. Not so. Here’s what he’s changing: no more bill enrollment, individual bill pay transaction, electronic bill pay, plan change or replacement card fees. The fund transfer fee between RushCards is dropping from $2.95 to $0.99. He’s cutting fringe fees—stuff a lot of people don’t use anyway. He’s not touching the monthly fee or the POS fees, which alone can easily reach over $200 a year. Even with Simmons trimming a few numbers, the Approved Card is shockingly superior.

Simmons’ justification

“I don’t think it’s my job to be the cheapest,” Simmons said. “I want to be the iPhone of the business.” He aims to offer services and features other prepaid cards don’t provide. These currently include online budgeting tools, free two-day advances on direct deposits and discounts on prescriptions and health services. Simmons says he will soon offer payday loans at rates far lower than typical payday lenders.

“I demand constant improvements in every aspect of my company, investing millions each year in innovative new benefits and features,” Simmons says. “Just like Branson and Zuckerberg, I created products that garner strong customer loyalty and evoke genuine emotion.”

Are the RushCard’s services worth over $200 annually? We’ll let you decide.

Suze Orman to cut monthly fee?

Relative to other prepaid options, the Approved Card ranks well. It’s cheaper than many but costlier than some—the American Express Bluebird, for example. But regardless of how it competes with other cards of its class, it remains categorized as prepaid debit. In their current evolutionary phase, prepaid cards are, by and large, detrimental to consumers. They target folks with limited credit, charge higher fees than some of the most advantageous rewards credit cards and do not help users establish a respectable credit history.

Since the launch of her card, the financial press has been bombarding Orman with an unrelenting onslaught of condemnation. Finance buffs know prepaid debit is the pits, and they know Orman knows it, too. The backlash induced an embarrassing Twitter fiasco in which Orman, unable to cope with the criticism, lashed out at several well-respected bloggers and reporters. Considering the media’s reaction to previous celebrity prepaid cards, the inimical reception was predictable, and Orman should have exercised enough forethought to batten down.

As the denigration continues, Orman shows symptoms of surrender. In a recent NPR interview, she hinted at the possibility of eliminating the Approved Card’s monthly fee: “…it is my intention to take that $3 a month fee – or 75 cents a month if you get four cards everybody in your family – that it eventually goes away.” If the fee were indeed eliminated, the Approved Card would be free for users who refill with direct deposit or account transfer and do not require additional services. If these plans come to fruition (though they sound a bit like empty political promises pre-election), the financial press would happily tip its collective hat. Suze, if you’re reading this, kill the fee. The nation will love you.

Road to recovery

Prepaid is trending towards tolerability. As competition increases, issuers will be forced to offer better rates and comprehensible fee disclosures. One of the biggest obstacles will be devising a method for cost-free reload. Both Orman and Simmons offer a few free reload options, including direct deposit, but neither has figured out a way to offer free cash deposits. As it stands, adding cash to a prepaid card requires MoneyGram, Western Union or MoneyPak services—a few dollars a pop. If utilized just twice a month, you’re looking an extra $84 a year.

Hopefully, as prepaid fees drop and cards become less profitable, celebrities will cease vying for a piece of the pie. Advertising with famous faces is a bit unfair from a consumer’s perspective. What does Lil Wayne have to do with personal finance?  In a recent letter, Russell Simmons his expressed his frustration with the financial press’s tendency to lump him in with other prepaid celebrity endorsers:

“In recent weeks, coverage of prepaid debit cards launched by Suze Orman and Lil Wayne has repeatedly portrayed me as a “celebrity endorser.”  Some of these stories have gone so far as to depict my RushCard business in the same light as the ill-fated Kardasian Kard.  The truth is, eight years ago I invested millions of dollars, putting my reputation on the line to found UniRush LLC.”

Russell, let’s be candid with one another. Yes, your involvement in the prepaid industry runs far deeper than that of Lil Wayne or Kim Kardashian. We’ll give you that. But are you leveraging fame to profit from fee-heavy cards that don’t help people build credit? Be honest, now. Are you?

There’s something wrong with prepaid debit cards. More so than any other financial product we’ve covered, prepaid cards rely on obfuscation and an anything-goes approach to disclosures.

But the tried-and-tested credit card disclosure method won’t work as well with prepaid: a simple list of each card’s fees leaves a consumer wondering which fees are relevant, which aren’t, and which are so ridiculous that any card charging them is a card to avoid. There’s no way to be both complete and understandable.

That’s where the nerds come in. We’re expanding our award-winning technology to include an interactive prepaid debit comparison tool, which gives consumers a tailored, at-a-glance understanding of each card’s cost. We plumbed the depths of disclosure pages to help consumers understand the financial free-for-all that is the prepaid market, simultaneously standardizing and personalizing the cards’ terms.

An at-a-glance summary of what matters

We found that a typical user could rack up almost $300 in fees on her prepaid debit card if she isn’t careful – but how can she know what to avoid before she gets slapped with penalties? How can she know beforehand whether she needs a monthly or pay-as-you-go plan, a transaction-fee-heavy or ATM-fee-heavy card, or even a prepaid debit card at all?

Our award-winning technology untangles that problem, making recommendations based on:

• Card use, including both signature and PIN transactions;
• ATM use, including withdrawals and balance inquiries;
• Reloads, including cash reloads; and
• Direct deposit and monthly loads, to determine if the user is eligible for a discount.

We also believe that checking accounts are often a better deal for consumers, but differences in fees make the two hard to compare. For example, most checking accounts let you cash checks for free, but most people won’t take the high cost of check cashing into account when choosing prepaid over traditional debit. To that end, we incorporated users’ overdraft and check cashing habits and included checking accounts in our comparison.

Comparison tools: Disclosure 2.0

Standardizing credit card disclosures greatly improved consumer welfare: at a glance, a potential cardholder can see the fees and interest rate of a card. But what if you’re dealing with not just an annual and foreign transaction fee, but a PIN transaction fee, an ATM decline fee, a cancellation fee, an inactivity fee and more?

The Schumer Box has been around for 23 years. It’s about time we took the next step forward, and made disclosures interactive. By offering a personalized estimate of each card’s cost, we help consumers to focus on what is most relevant to them. The greatest value of the Schumer Box was offering a comprehensive and succinct summary of what’s relevant in a credit card. Prepaid debit cards are so complex that a static laundry list of fees won’t accomplish that goal, but perhaps an interactive tool can.

What’s wrong with prepaid debit cards?

Let’s make one thing clear: not all prepaid debit cards are evil. Some do offer good value to people averse to joining the traditional banking system. That said, over the course of developing this tool, we’ve found out some disturbing facts:

• The average prepaid debit card costs nearly $300 a year, without direct deposit.*
• The average student-oriented prepaid debit card costs $169 a year.
• The cards charged an average of:
• $4.81 just to activate the card
• $4.56 in monthly fees
• $2 per ATM withdrawal
• $4.49 for a cash reload (for example, with a Green Dot MoneyPak)

By comparison, a Bank of America eBanking account (hardly known for its fee-less-ness) costs $107.40 a year without overdrafts, and many credit unions offer no-strings-attached free checking with opening deposits of as low as $5.

The myths and facts about prepaid debit cards

It’s not just the numbers that make us uncomfortable. There are a number of misconceptions about prepaid debit cards.

Prepaid debit is cheaper than checking. This is very rarely the case. For all the hype about free checking becoming extinct, any number of online, community bank or credit union checking accounts are completely free, with no strings attached. That’s why we include checking accounts in our database: it’s not a given that prepaid is better than traditional debit.

Prepaid debit helps your credit score. This one is simply not true. If you have bad credit, getting a prepaid debit card will have no effect whatsoever on your credit score – and you’ll be paying a high fee for the privilege. Your best bet is a secured credit card, which is accessible to those with less-than-stellar credit and which helps to rebuild credit.

Prepaid debit is as safe as traditional checking. Lately, Congress has passed a number of protections for debit and credit cards, from imposing strict regulations on overdraft fees to prohibiting arbitrary and sustained interest rate hikes. But prepaid debit cards are a relatively new innovation, and Congress has a vested interest in keeping issuers happy – they’re now paying out Social Security benefits on prepaid, for starters – so prepaid debit cards don’t have the same consumer protections.

I can’t get a checking account. Many banks and credit unions use ChexSystems to vet their checking account applicants, so someone who’s been blacklisted sees his options diminish significantly. But before choosing prepaid, check out your local credit union to see if they offer a second-chance checking account or similar program. And if you think your credit score would qualify you for a checking account but you’re still on the ChexSystems list, ING and others use a credit report rather than ChexSystems.

Prepaid debit card issuers aren’t necessarily FDIC-insured, so if the issuer goes under, your money might not be guaranteed. They also don’t get the same fraud protection that debit and credit cards do. Cards issued by banks and credit card companies generally cover fraud losses, provided that you follow through with certain procedures. It’s unclear whether those protections apply to prepaid debit cards as well, so you’re left at the dubious mercy of MasterCard and Visa’s zero-liability policies, which have pretty big loopholes. For example, you’re on the hook with a Visa prepaid card if you don’t enter your PIN or if your money is stolen via ATM.

The bottom line

Prepaid debit cards aren’t always as good as they’re made out to be. For all their slick marketing campaigns, they don’t help your credit score, they’re not as well protected as other products, and they’re often far more expensive than traditional checking. But there’s nothing inherently wrong with prepaid debit – we just think it’s a problem of misinformation. And that’s why we have our comparison tool: so that people know what they’re buying before they buy it.

*Annual cost estimates assume 10 PIN transactions, 7 signature transactions, and 2 ATM withdrawals, cash reloads and online bill payments a month. It excludes activation, balance inquiry, cancellation, inactivity and countless other fees. Usage data derived from the PULSE Network 2010 Debit Issuer Study.