A prepaid debit card is a plastic card that is supplied with a pre-set amount of funds for a distinct purpose. Unlike a typical debit card that is used to withdraw funds from a personal or business bank account, this type of reloadable card is most often used for regular purchases or a specific goal. For example, you can use a prepaid debit card as you would a secured credit card.
Visa, MasterCard and other companies offer these cards as a way for people to build or establish credit. To pay for regular purchases, you can fund one like you would a gift card and then use it each time you need to pay for a product or service.
Benefits of Prepaid Debit Cards
These tools guarantee that you can’t overspend and rack up those awful overdraft fees, penalties and higher interest rates that result when you spend beyond your means with a traditional debit card, credit card or checking account. If you can’t get a bank account, or if you simply don’t like to carry cash, this can be a good method.
Many of these services will send you alerts when your balance is nearing zero so that you can reload the account. Of course, you won’t need to worry about a credit check and you can obtain a card instantly. Also, some companies will not honor debit cards, but will honor prepaid debit cards.
The direct deposit option is very attractive to many people. By having a paycheck instantly loaded onto the card, you can avoid the need to write checks. Just swipe the card instead. And you won’t run the risk of writing bounced checks since the card won’t process if adequate funds aren’t in the account.
Drawbacks of Prepaid Debit Cards
Of course, there is a downside. These reloadable cards often carry monthly maintenance fees, purchase fees, withdrawal and even balance inquiries at ATMs. Other than that, the main drawback is that your money is tied up in the account. This means you don’t have that ready cash for other purchases, and you certainly can not use this type of card to make a big purchase you don’t have the funds for and pay down the road. What you have loaded on the card is your limit. Finally, using a prepaid debit card can be more expensive than just having a checking account and an ATM card.
The other issue to be aware of is that a prepaid debit card will not boost your credit score as much as a traditional or secured credit card can. This is because you are not managing the funds to the same extent. The process is automatic. Some prepaid cards will help your rating to a small degree, while others will have not impact on it at all.
Should You Get a Prepaid Debit Card?
If you think that this type of debit card meets your needs, take the time to compare your options. Some companies will offer direct deposit options for your paycheck, waive the activation fee or even give you cash back rewards. Others are ideal for government employees, folks who live by text messaging or those who can’t access cash easily. The only way to discover the best card is to look at the choices. Use our free credit card finder on our home page that will allow you to compare your choices side by side. Analyze the fees, any rewards, and the way each card helps you to meet your goals. Get started now!