Pros and Cons to Prepaid Debit Cards

Prepaid Debit Cards quickly became a hot topic awhile back when several famous personalities started championing them. Despite all of the heat they took, there is a place for Prepaid Debit Cards and they can be a good thing in certain situations.

Pros to Prepaid Debit Cards

1. They can be used just like a credit card.

Whether you get a Visa or Mastercard prepaid card, these debit cards are accepted wherever Visa and Mastercard are accepted…despite the fact that they aren’t credit cards.

2. No credit is being offered.

While this may be a “con” for some people, the reality is that prepaid debit cards are exactly that: you have to load (prepay) a specific amount on them and you can only spend the amount you’ve loaded onto the card. This is extremely beneficial in the fact that it doesn’t allow you to go into debt!

3. It’s easy to get approved.

The majority of people that are in the market for prepaid debit cards have terrible credit and may even have marks on their banking history. Being somebody that was flagged in ChexSystems database, I personally know how difficult it can be to cash checks, pay bills, and make purchases if you don’t have a bank account.

The prepaid debit cards are a great solution for those people that can’t have or don’t have a bank account. Some prepaid accounts will allow you to setup online bill pay with your utility companies and it gives you an avenue to pay other bills via “credit card.”

4. Direct Deposit.

The majority of prepaid debit cards offer a direct deposit option, and some even off you a bonus to do so! Instead of finding a place to cash your checks (particularly if you don’t have a bank account), you can now have your paycheck directly sent to your prepaid debit card account.

Cons to Prepaid Debit Cards

1. Fees, Fees, Fees.

The reason Suze Orman and a few others got blasted for promoting these cards is because she tried to downplay all of the fees that are associated with these accounts. Fees vary by card but they could include: activation fees, reload fees, ATM fees, and even fees for purchases.

If you’re looking for a prepaid debit card, then make sure to do your homework. While a traditional checking account will be the cheaper route, if you don’t have that option be sure to compare as many cards as possible and find the one that will best fit your needs.

2. They don’t build credit.

Some people have the misconception that these debit cards will help build your credit, however they simply don’t. Don’t be fooled by the “Visa” or “Mastercard” logo; these cards are nothing more than a high-priced checking account without the check writing privileges.

Overall, there are many pros and cons to prepaid debit cards; if you’re in the market for one, I’d simply encourage you to shop around and make sure you find one that best meets your needs. Always be weary of the fees, but other than that they are a viable option for those than are unable to open a checking account through a traditional bank.

About the Author

By , on Oct 21, 2012
Andy Tenton
Andy is a 30-something New Yorker who turned his financial life around. He took charge of his finances, got out of debt, and is now working his way toward financial success. He is the publisher of WorkSaveLive.com.

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{4 Comments}

  1. Joe Morgan says:

    I remember when prepaid cards were just for high school students or people with a bad credit score. They have really come into their own recently though, and definitely have their place. They can be a really excellent tool if you can find one with low fees…

    They can be useful for enforcing a budget even if you do have a bank account. Banks accounts let you overspend on Christmas for example. Most prepaid cards have a hard limit and the card will be rejected once you hit it…

  2. Funancials says:

    Definitely A LOT of Americans that can’t have a bank account. It seems odd to many…but so does the fact that our savings rate is negative.

    At a time when MOST banks are focusing on affluent customers, lots of Americans will have to turn to these prepaid cards.

  3. CF says:

    These cards have always puzzled me – why would someone not be able to get a bank account? Is it a residence thing in some places? I don’t think I’ve ever had a problem getting an account but I’ve always been a resident of the city and stuff.

    • Andy says:

      CF, that’s a great question. Here in the US we have a system called ChexSystems. It’s a system specifically designed for banks and its where banks post information about a bad experience with a particular customer of theirs; basically it’s like your credit report/score but just for the banking world.

      I got flagged by ChexSystems’ database because I had an over-drafted account for 30+ days at US Bank and I didn’t pay them back for a few months (as I was figuring things out and getting my life in order).

      That’s the primary reason people wouldn’t be able to get bank accounts, but having an address definitely is an issue too. However, you do need some sort of mailing address for the prepaid cards.

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