The world of commerce is becoming more automated to the point where it’s hard to make certain transactions without having a credit card or debit card. It’s almost impossible to rent a car or book an airline ticket without having some type of plastic. But, when you’re going through debt settlement, you may not have access to a credit card. Many people in debt settlement have also lost access to checking accounts and therefore debit cards. So what’s the solution?
Fortunately, there’s an alternative credit card-like product for people who don’t have a credit card and can’t get a checking account. That product is a prepaid card. Prepaid cards work much like debit cards. Some prepaid cards even give you the ability to write checks against your balance.
How Prepaid Cards Work
You load a certain amount of money onto the prepaid card. Depending on your card, you can do this online, at a kiosk, or at certain stores. Once you make the deposit, you can swipe your card and make purchases up to the amount of your deposit (or maybe a little less depending on the fees). So, if you deposit $500 on your prepaid card, you can typically make $500 worth of purchases. You can’t spend more than you’ve deposited so you don’t have to worry about overdraft fees or over-the-limit charges.
Since you’re spending money you’ve already loaded, there are no monthly minimum payments to make or interest being added to the purchases you make. Each transaction you make reduces your spending balance by the amount of the purchase. A $50 purchase will reduce your spending balance by $50.
No Credit Check Required
There is usually no credit check to get a prepaid card. Since you’re not being extended a credit line, there’s no reason for the prepaid card issuer to check your credit history. You can be approved for a prepaid card despite late payments or a recent debt settlement. On the other hand, using your prepaid card won’t directly impact your credit history. You won’t get any credit score points by using your prepaid card wisely. But, you can use your prepaid card to prevent future damage to your credit by using it to pay your bills on time.
A prepaid card with a Visa or MasterCard logo is conveniently accepted everywhere that regular credit cards with those payment networks are accepted. This lets you easily buy gas, pay for groceries, pay bills online, etc.
Direct Deposit Available
Many prepaid cards let you have your paycheck direct deposited onto your account and some even waive monthly account fees if you have at least one direct deposit per month. This means you could avoid the check cashing fee you’d otherwise face if you had to go to a check cashing place. Direct deposit also eliminates the extra step of loading money onto your prepaid card. If you need cash, you can visit an ATM. You’ll likely face an ATM withdrawal fee, but that fee is normal with debit cards, too.