With so many different credit cards and debit cards out there, it can be hard to choose. One option you may not have thought about is a prepaid card. With a prepaid card, you have to first load existing funds onto the card before you can use it. This way you control the amount of money you’re spending.
Uses and benefits of a prepaid card
1. It’s easily accessible
Some lenders offer you the option to receive your loan funds on a prepaid card. But you can also buy yourself a prepaid card. Just go online or to a convenience store. Most prepaid cards are associated with major credit card networks (Visa, MasterCard), and those which are, can be used everywhere debit cards are accepted.1
2. It can help you budget
Knowing you only have a certain amount available may help you better allocate your funds. A large majority of people use prepaid cards to control spending and avoid spending money that they don’t have.2
You know what else you can avoid? High overdraft fees on debits cards. Checking account overdraft fees that can be incurred with debits cards are a main reason people are now opting for prepaid cards.3
3. Reload and reuse
Don’t toss that empty card just yet. Most issuers allow you to reload funds onto your card. You can transfer money from a bank account, add additional funds to the card at a retail store or set up a direct deposit from your employer.4 This can help you manage what goes in and out over a longer period of time.
Things to be aware of
As with any financial account or method, there are some drawbacks to look out for. However, some of these can be avoided by reading the terms and conditions before choosing a prepaid card.
Fees - These can vary per issuer, but common fees include activation, monthly maintenance and ATM access.5
No credit building - Prepaid cards can’t hurt your credit score, but they also won’t help improve your score.
Spending money is easy. But monitoring and tracking it takes patience, self-control and finding what works for you. While prepaid cards aren’t the answer for everyone, you may end up crediting them for some future smart money habits.
- Warnick, Melody. “9 things you need to know about prepaid cards.” Creditcards.com. https://www.creditcards.com/credit-card-news/help/9-things-you-need-to-know-about-prepaid-cards-6000.php (accessed June 14, 2018).
- Pew Trusts. “Why Americans Use Prepaid Cards.” Pewtrusts.org. http://www.pewtrusts.org/~/media/legacy/uploadedfiles/pcs_assets/2014/prepaidcardssurveyreportpdf.pdf (accessed June 14, 2018).
- Bakker, Evan. “The rise of reloadable prepaid cards could affect the way millennials approach banking.” http://www.businessinsider.com/the-rise-of-reloadable-prepaid-cards-could-affect-the-way-millennials-approach-banking-2016-4-25 (accessed June 14, 2018).
- Warnick, Melody. “9 things you need to know about prepaid cards.” Creditcards.com. http://www.businessinsider.com/the-rise-of-reloadable-prepaid-cards-could-affect-the-way-millennials-approach-banking-2016-4-25
- Consumer.gov. “Prepaid cards.” Consumer.gov. https://www.consumer.gov/articles/1005-prepaid-cards#!what-to-know (accessed June 14, 2018).