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Prepaid debit cards can be an innovative way to manage your money. These cards don’t allow you to pile on personal debt because you spend only what is preloaded on the card, without making use of any credit. Hence, the cardholder assumes no risk whatsoever of ugly letters and phone calls from a collection agency.
When shopping online or making a hotel reservation, a prepaid debit card works much like a bank-issued debit card. These cards can also be used in brick-and-mortar stores and at ATMs. Qualifying for a prepaid debit card generally doesn’t require a credit check. Consumers who have had financial problems and are unable to open bank accounts generally qualify for prepaid debit cards.
Contrary to what you may have heard, prepaid debit cards typically can’t help you build up your credit scores. Prepaid debit cards can’t be used as part of a credit-building strategy because they aren’t reported to the credit bureaus. Prepaid debit cards work just like using cash and, therefore, are not predictive of how a person will manage his or her credit obligations in the future.
Recent legislation now requires prepaid card issuers to provide fraud and error protection policies, but you must register your prepaid card to be eligible. Consumers can dispute charges and stolen money can be restored; check with your prepaid card issuer for details.
But what if you don’t register? If you load $500 onto a prepaid debit card and lose it, it’s just like losing $500 in cash. You’re out of luck. Recovering the funds will likely be impossible.
If you lose a credit card with a $500 limit, however, and you notify the card issuer right away, then you really haven’t lost anything other than a little piece of pretty plastic. The card issuer will send you a new card, and there are fraud protections in place to protect you in case any unauthorized charges occurred before you reported the card as lost or stolen (even for secured cards where you have to put up a deposit).
Unfortunately, prepaid debit cards are notoriously loaded with outlandishly high fees which the card user gets trapped into paying. We’re opposed to the idea of paying any fee to use your own money, but you may find inexpensive prepaid cards that can be quite useful.
Some of the potential costs that come with a prepaid card include:
Here are the most important things to look for:
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