Are Prepaid Cards A Good Option

Prepaid cards are reloadable and can be used for purchases at businesses that accept credit cards and can sometimes be used for ATM withdrawals. A prepaid card should be used in addition to having a traditional bank account but should not solely for money transactions.  

There are many advantages to using prepaid cards but there are also many disadvantages.  Prepaid cards work similar to debit cards for making payments or purchasing items.

Prepaid cards are helpful for those who cannot get a credit card or open a bank account due to bad credit. Some consumers have been scammed by companies regarding prepaid cards.  

Over 100,000 consumers who paid for payday loans online were tricked into paying for prepaid cards instead.  Consumers signed up for payday loans but were tricked into signing up for prepaid cards with a zero balance.  

Pros

1. Reloadable
2. Used at businesses that accept credit cards
3. No credit check
4. No minimum balance and free direct deposit
5. Easier than obtaining a credit card
6. Returning goods or canceling services treated the same as cash
7. May get perks such cash back rebates or airline miles
8. Must be 18
9. May help control spending

Cons

1. Fees - activation fees, monthly fees, hidden fees
2. Less protection against loss or theft
3. Payment history not reported on your credit reports
4. Do not adhere to the same security guidelines as traditional credit cards
5. If the bank goes bankrupt your money on the prepaid card may be lost forever
6. Unable to exceed the spending limit if needed
7. No protection against theft, identity theft and scams
8. Some banks may assess overdraft fees even if the card is stolen
9. Not regulated by same laws as standard debit or credit cards. 

Benefits of Using a Prepaid Debit Card

 

Prepaid debit cards are a great tool to use for financial empowerment and effective money management. Prepaid cards are a great way to save money to make purchase (small and large). A principle that your grandparents or great-parents used when credit cards were not available or not as readily available. Many Americans are using reverse budgeting as a way to save for purchases without getting into debt.

To use reverse budgeting you must determine what you want to purchase, the total amount you will need to save and how much money you need to save each month towards your goal. After you have reached your savings goal, you can use the prepaid debit card to pay for an item you desire to purchase. 

Prepaid debit cards are a convenient way to make purchases, they prevent consumers from spending more money than they have and it is easy to add funds. Prepaid debit cards are like an auto brake pedal. They stop you from crashing and going overboard with your spending.

Prepaid debit cards help you stick to a budget or spending plan. This makes you more conscious about your spending. Prepaid debit cards work similar to debit cards for making payments or purchasing items.

Prepaid debit cards are also helpful if you do not want to carry large amounts of cash. Comparison shop and read all the fine print before choosing a prepaid debit card. Prepaid debit cards can be used in multiple ways when spending money.

Great for everyday spending

If you previously overspent, paid bank fees for overdrafts, bounced checks or have difficulty with budgeting your money, a prepaid debit card is a great option for spending money and paying bills. It can also be used as a backup payment method or money source.

Controls spending

Prepaid debit cards help control spending and are an alternative to a cash based lifestyle. Your spending is limited to the amount of money available on your card. Prepaid debit cards help manage cash flow. A prepaid debit card shows your spending habits at any given time or over a period of time either daily, weekly or monthly.

Helps to Create a Budget

Using a prepaid debit card helps you to create a budget by tracking every expense. You can see right away what you are spending you money on by viewing your account online or viewing your monthly statement. A budget will help you categorize your spending and identifies what you earn and what you spend. A budget helps you to reduce spending which is beneficial when trying to save money to make future purchases. 

A budget helps you to become conscious of your spending by paying attention to the cost of an item, quality and materials used. Subtract your total monthly income (net) minus your total monthly expenses. 

Online and In-Store purchases

You can shop online anonymously. This helps reduce identity theft since the card is not directly linked to your bank account. When making purchases do research online to compare prices with at least three companies to find the best deal. Compare prices in-store versus purchasing online. Look online for coupons or discount codes.

Is a Prepaid Card Right for You

                                          

A prepaid card should be used in addition to having a traditional bank account but should not solely for money transactions. Prepaid cards work similar to debit cards for making payments or purchasing items.

Prepaid cards are helpful for those who cannot get a credit card or open a bank account due to bad credit. Prepaid cards are also helpful if you don’t want to carry large amounts of cash but should only be used as a temporary measure until your financial situation improves. 

Prepaid cards have activation fees, monthly fees and other hidden fees.  Some prepaid cards have activation fees up to $39.95 but most fees range from $2.95 - $9.95. They also have less protection against loss or theft. Be sure that the bank prepaid card you use is FDIC insured. 

Some consumers have been scammed by companies regarding prepaid cards. Purchase prepaid cards with traditional well-known banks such as those with the Visa, MasterCard or American Express logo. 

Many non-financial companies also offer prepaid cards such as Facebook which is available at Target and Wal-Mart. The cards can be used to purchase Facebook credits which are applied to purchase games or other applications. Comparison shop and read all the fine print before choosing a prepaid card.

Prepaid credit cards may help control your spending. You can control over your spending limits and are great option for teens or college students. Once you activate the card you are able to start using it. Each time you make a purchase the amount is automatically deducted from your card balance. This forces you to keep track of your balance so you will never go over your limit because you can only spend the money you have on your card.  

How they work

1. No credit check
2. No minimum balance and free direct deposit
3. Accepted at many locations
4. Returning goods or canceling services treated the same as cash
5. Activation fees range from $5.95 - $39.95.
6. Can be used at ATMs
7. Can’t go into debt
8. Must be 18 to purchase
9. If the bank goes bankrupt your money on the prepaid card may be lost forever
10. Unable to exceed the spending limit if needed. 
11. May dispute unauthorized charges or other mistakes within 60 days.
12. Every bank determines what protections are available if any and sets its own policy for prepaid cards. 
13. May reduce your risk of identity theft.

What They Don’t Have

1. The bank may not be FDIC insured.
2. Prepaid cards are not reported on your credit report and cannot help rebuild your credit.
3. No protection against theft and scams. 
4. If your prepaid card is stolen the thief has access to all of the money on your card.
5. Some banks may assess overdraft fees even if the card was stolen.
6. Not regulated by Electronic Funds Transfer Act which governs debit card transactions.