A prepaid card doesn’t build your credit history, but nonetheless, there are reasons to get a prepaid debit card. These cards are sold at convenience stores and grocery stores. While there are fees to activate and load a prepaid card, some people actually prefer these cards over credit cards. Not sure whether a debit card is right for you? Here are seven sensible reasons to get a prepaid debit card.
1. You Can’t Get a Credit Card
If you have no credit history or a low credit score, both are reasons to get a prepaid debit card. There are credit cards available for people with no credit history and a low credit score, however, these cards feature high interest rates and other fees. A prepaid debit card is a better approach because you don’t have to complete an application or wait for a credit check.
2. You Can’t Get a Bank Account
If you have a poor banking history and you can’t get a bank account, a prepaid debit card might be the answer. You can cash your paycheck and then deposit funds onto your debit card, or if your employer offers direct deposit, the company can deposit your check directly onto your prepaid debit card. Use the card for bills or everyday purchases, such as gas and groceries.
3. You Can Monitor Your Kid's Spending
Maybe you want to teach your kid credit management but you don’t trust him or her with a credit card. No problem. Simply get a prepaid debit card, load the card and give your kid a monthly spending limit. This can teach him or her how to stick to a budget and manage a credit card.
4. Substitute for the Envelope System
Having an envelope with money for groceries, gas and miscellaneous expenses is one way to stay on budget. But keeping up with envelopes can be difficult, and you may prefer not to keep cash in the house. There is another way. Let’s say you normally keep your grocery money in an envelope. Rather than keep cash in the house, load your grocery money onto a prepaid debit card. This can work for other household expenses as well, such as entertainment and gas.
5. You Can Avoid Debt
A prepaid debit card makes sense if you want to avoid credit card debt. With a credit card, you’re given a limit. Even if you resolve to stay under your limit, you may overspend and end up owing your credit card company thousands of dollars. Digging yourself out of a hole is no joke, and it can take years to pay off high balances. This is not an issue with a prepaid debit card. You can only spend what you load on the card.
6. It’s Cost-effective
Prepaid debit cards get a bad rap because of fees to activate and load the card. However, when compared to credit card fees, a prepaid debit card may be the cheaper alternative. With credit cards, there’s monthly interest charges and some cards have an annual fee. There are also other fees that many people don’t think about, such as a balance transfer fee, a cash advance fee and foreign transaction fees.
7. Widely Accepted like Credit Cards
If you have a Visa, MasterCard or American Express prepaid debit card, your card will be accepted by many retailers. You need a credit card to book a hotel reservation, car rental and airline ticket. Fortunately, a prepaid debit card works just like a credit card.
Again, a prepaid debit card will not build or improve your credit history. Therefore, you’re better off with a credit card if this is your goal. But if you’re looking for a simple, cheap way to manage finances, why not go the prepaid route? Do you feel that prepaid credit cards are beneficial?