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Prepaid debit cards can be an innovative way to manage your money. These cards do not 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. Unlike bank-issued debit cards, 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 on some advertisement, prepaid debit cards cannot possibly help you to build your credit reports. The reason why it is impossible for prepaid debit cards to be used as part of a credit building strategy is because these cards do not and have never 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/her credit obligations in the future. That is why they never show up on credit reports.
If you load $500 onto a prepaid debit card and you lose your card then it is as if you just lost $500 in cash. You are out of luck. Recovering the funds will likely be impossible. If you lose a secured credit card with a $500 limit and you notify the card issuer right away then you really haven’t lost anything other than a little piece of pretty plastic. The secured 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.
Unfortunately, prepaid debit cards are notoriously loaded with outlandishly high fees which the purchaser of the card gets trapped into paying. Prepaid debit cards often card surcharge fees, activation fees, ATM fees, card maintenance fees, etc. Admittedly, there are some prepaid debit card products which are cheaper than others, but I certainly am opposed to the idea of paying any fee to use my own money.
Some of the potential costs that come with a card include:
Here are the most important things to look for:
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