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Prepaid phone cards are hot and getting hotter. Their prices are falling, according to Frost & Sullivan, a consulting firm in Mountain View, Calif. For many consumers, they're the lowest-cost way of making long-distance telephone calls.

There are two kinds of phone cards, traditional and prepaid. Traditional cards (often called "calling cards") are issued by your long-distance telephone company. You're billed every month for the calls you've made.

Prepaid cards are sold by some 500 national and local firms, reports the Chicago trade paper, Debit Card News. They buy time from the major long-distance carriers at wholesale rates, mark up the price and sell to you. The local and long-distance phone companies offer these cards, too.

You typically buy a prepaid card for anywhere from $5 to $20. To use it, you dial an 800 number, punch in your card number, then dial the telephone number you're calling.

As your call proceeds, the per-minute cost is deducted from your card account. If you make a $2.50 phone call on a $10 card, you'll have $7.50 left for future calls.

When you punch in your card number, a voice usually tells you how much money you have left. You have to end the call when the money in your account runs out.

Most card companies charge flat rates per minute, regardless of the time of day. Prices vary tremendously. Rates for U.S. calls run around 19 cents to 41 cents. There's often a 50-cent surcharge for calling from a pay phone.

Rates may be higher for cards bought in airport vending machines, says Howard Segermark, executive director of the International Telecard Association in Washington, D.C. They may be lower for cards that connect through a local, seven-digit phone number.

International calls may charge U.S. rates plus a connection charge. Or there may be different rates for different countries.

The respectable cards disclose the U.S. charges right on the package or on the vending machine, Segermark says. You shouldn't have to buy the card to find out. An 800 number should also be displayed, where you can call to ask about rates to particular foreign countries.

The cards have expiration dates, so be sure to make your calls within the time allowed.

If you're making a long-distance call from a pay phone, it's cheaper to use a prepaid card than to feed coins into the slot. But use coins, not the card, when you're making a local call.

If you're making a long-distance call from home, it's cheaper to dial directly than to use a card.

But what if you're away from home and have always used a traditional calling card?

Most traditional cards charge around 30 cents a minute, plus a surcharge of 25 to 60 cents per call. That's expensive. You'll do better with a prepaid card. Many small businesses give their traveling employees prepaid cards, rather than issue them calling cards.

A few traditional cards, however, don't add surcharges. For that reason, they can beat -- or at least equal -- a prepaid card, says Samuel Simon of the Telecommunications Research and Action Center in Washington, D.C.

Two traditional cards without surcharges: (1) WorldCom, at 30 cents a minute (800-275-0100). (2) MCI, at only 5 cents to 25 cents a minute for calls made to your home number, depending on the time of day (800-462-4663). Consider an MCI card for a kid who's away at school. For calls to other numbers, MCI charges a costlier 45 cents.

If you're out of the country, you may need a traditional card. Many prepaid cards don't work when calling from outside the United States.

The next step for prepaid cards: multiple uses. MCI just signed on to Mobil Oil's prepaid GO card, available in $25, $50 and $100 denominations. You can use it for gasoline and retail purchases at Mobil stations, and telephone calls.

Some prepaid cards are frauds. You're tempted to buy because they advertise super low long-distance calling rates. But when you dial a number, the card doesn't work or hits you with an undisclosed surcharge. In other cases, cards may be issued by shaky companies that fail before you can use all the calling time you bought.

For safety, stick with cards that have brand names you know -- say, from familiar phone companies or retailers. They won't let their cards go broke.

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