A Remedy for Identity Theft

Over 16 million people were victims of identity theft in 2017 including credit card and debit card holders.  One way to protect yourself from identity theft is to purchase a prepaid credit card or prepaid debit card. I am very careful about 1) where I use my credit card and debit card, 2) online shopping and 3) general protection of my personal information.  Unfortunately I still became a victim of identity theft due to a Netflix scam that charged my debit card $7.99 for a movie I never purchased. 

I didn’t notice the unauthorized transaction until I received my bank statement because I hadn’t used the debt card in over 3 months. I immediately had the account closed. This further reinforces my decision to pay for everything with cash.  However, some merchants prefer customers pay with a credit card so in those instance I have to pay with my credit card. There are several benefits of using a prepaid credit card or debit card. 

The benefits of using a prepaid credit card are:

1. Load cash online, from another card, direct deposit, online or at a retail location.
2. Zero liability.
3. Accepted everywhere.
4. No maintenance fees. 
5. Helps manage your money.
6. No interest rates.
7. Can be used at ATMs.
8. Prevents going into debt.
9. Can make purchases online.

The benefits of using a prepaid debit card are:

1. Load cash online, from another card, direct deposit, online or at a retail location.
2. Accepted everywhere.
3. Zero liability.
4. No maintenance fees.
5. Helps manage your money.
6. Can’t go over the limit.
7. Can be used at ATMs.
8. Can make purchases online.
9. No late fees.

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. 

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.